Big-Picture Snapshot

Drivers this month

December 2025’s GDP growth rate of 1.30% marks a modest deceleration from November’s 1.40%, and is below the 12-month average of 1.37%. The reading is also lower than the 1.50% seen in September and June 2025, highlighting a loss of momentum in the second half of the year. Key contributors to the slowdown include:

• Weak industrial output, especially in Germany and Italy
• Muted consumer spending amid persistent inflation pressures
• Softening export demand, particularly from China and the US

Policy pulse

The reading remains well below the ECB’s implicit target for potential growth (around 1.50–2.00%). With inflation easing but still above target, the ECB has maintained a cautious stance, keeping policy rates elevated. Fiscal policy across the bloc has shifted toward consolidation, with several governments tightening budgets to comply with EU fiscal rules.

Market lens

Immediate reaction: EUR/USD dipped 0.20% in the first hour after the release, while Eurozone 2-year yields fell 4 bps. Equity markets were flat, reflecting a wait-and-see attitude. The subdued print reinforced expectations that the ECB will delay rate cuts until Q2 2026.

Foundational Indicators

Core macroeconomic context

The December 2025 GDP print extends a pattern of sub-trend growth. Over the past six months, readings have ranged from 1.30% to 1.50%, with April and May 2025 both at 1.20%. The 12-month average stands at 1.37%, underscoring the lack of acceleration despite a gradual easing of supply chain bottlenecks and energy prices.

Monetary policy & financial conditions

The ECB’s deposit rate remains at 4.00%, with forward guidance emphasizing data dependence. Real rates have turned positive, tightening financial conditions. Bank lending surveys show continued weakness in credit demand, especially among SMEs.

Fiscal policy & government budget

Fiscal consolidation is underway, with the EU’s aggregate deficit projected to narrow from 3.20% of GDP in 2025 to 2.80% in 2026. However, public investment remains constrained, limiting upside for domestic demand.

External shocks & geopolitical risks

Risks persist from ongoing geopolitical tensions in Eastern Europe and the Middle East, as well as trade frictions with the US. The euro area remains exposed to global demand swings, particularly in manufacturing and autos.