The overall moderate growth of the EU economy
In 2025, the EU economy will demonstrate a certain degree of resilience against the backdrop of increasing global uncertainty. Despite facing challenges such as geopolitical conflicts, trade frictions, and energy transition, the overall economy has achieved moderate growth. The European Commission's recently released autumn economic outlook report for 2025 predicts that the EU's real gross domestic product (GDP) will grow by 1.4% in 2025, and the eurozone will grow by 1.3%, slightly higher than the forecast given in the spring. This performance is attributed to the recovery of consumption, investment, and moderate easing of monetary policy, but the growth rate is still below potential, reflecting the continued existence of structural problems. At the same time, the issue of significant economic differentiation among EU member states cannot be ignored. Eastern and southern countries, such as Poland and Spain, have strong economic growth, while core economies such as Germany and France are relatively weak.
2025 is a crucial year for the EU economy to gradually recover from the aftermath of the pandemic and the impact of the Ukrainian crisis. At the beginning of this year, the EU continued to inject funds through the "Next Generation EU" fund to support green transformation and digital reform. However, changes in the external environment, such as the US government's trade policy adjustments, have brought new pressure to the EU's export-oriented economy. Meanwhile, internal political turmoil, including election uncertainty in France and Germany, further amplifies economic risks. Overall, although the EU economy has not fallen into recession by 2025, its weak growth highlights the urgency of deeper reforms.
In terms of economic growth, the EU GDP is expected to achieve a moderate expansion of 1.4% in 2025, higher than the 1% in 2024. This growth is mainly driven by private consumption and investment. Benefiting from rising wages and slowing inflation, the actual disposable income of EU residents has increased, driving the recovery of the retail and service industries. However, it is worth noting that there are significant differences in economic forecasts among member states: Poland, benefiting from infrastructure investment and EU funding injections, is expected to grow its GDP by 3.2% in 2025; Spain is expected to grow by 2.9% due to the gradual recovery of tourism and real estate. In contrast, Germany, as the largest economy in the European Union, is expected to grow by 0.2%, with the decline in manufacturing being the main drag factor. Overall, the EU economy is expected to reach $19.99 trillion (in nominal terms) this year, accounting for approximately one sixth of the global economy.
Controlling inflation will be a major highlight of the EU economy in 2025. The annual consumer inflation rate in the Eurozone remained stable at 2.1% in November, unchanged from October and close to the European Central Bank's medium-term target level, mainly due to the decline in energy prices and supply chain recovery. At the beginning of this year, energy inflation briefly rose due to geopolitical tensions in the Middle East, but the European Central Bank effectively suppressed price pressure through multiple interest rate cuts. Among member countries, Estonia has the highest annual inflation rate at 4.7%, followed by Croatia (4.3%) and Austria (4%). Compared to 2024, EU inflation will become more stable in 2025, providing space for monetary policy to shift towards stimulating growth.
Overall, the economic performance of the European Union in 2025 exceeded expectations. Although the growth is slow, it has avoided recession, and the stability of inflation and employment lays the foundation for future recovery. However, this performance depends on external factors, and internal structural issues still need to be addressed.
Despite achieving certain results, the EU economy still faces multiple challenges in 2025.
Weak growth is the core issue. The EU GDP is expected to grow by 1.4% in 2025, far below the global average of 3.0%, indicating a significant decline in competitiveness. In addition, the EU Manufacturing Purchasing Managers' Index (PMI) hovered below 45 for the whole year, indicating a contraction. Among them, the German automotive industry was affected by factors such as the transition to electric vehicles and supply chain disruptions, resulting in a 5% decrease in output. In addition, structural lag, such as insufficient investment in innovation, has led to the EU falling behind China and the United States in the field of technology.
Trade frictions exacerbate uncertainty. The new US government has implemented the so-called "equal tariffs" policy, intending to impose 10% to 20% tariffs on EU goods, directly impacting the export-oriented economy. EU exports to the US have decreased by 3%, with the automotive and chemical industries being the hardest hit. In addition, the uncertainty of trade policies has led to investment hesitation among businesses, and it is expected that private investment growth in the European Union will only be 1% by 2025.
The energy transition and geopolitical risks continue. The Ukrainian crisis has entered its third year, and although the EU has made progress in diversifying its energy imports, natural gas prices remain high. Meanwhile, the tense situation in the Middle East has pushed up oil prices, leading to hidden inflation risks. In addition, in the process of the EU's green transformation, renewable energy investment requires trillions of euros, but the funding gap is large, and some member states, including Poland, rely on coal, making the transformation even more lagging behind.
Financial and debt pressures have increased. The EU requires member states to control their fiscal deficits within 3% of GDP, but the increase in defense spending due to the Ukraine crisis has squeezed investment in people's livelihoods in various countries. At the same time, political fragmentation within the EU has intensified, the French parliamentary elections have led to a budget deadlock, the German coalition government is unstable, and policy implementation has declined.
Immigration and population aging are serious issues. In 2025, the European Union will face the influx of millions of immigrants, increased border management costs, and heavier social welfare burdens. At the same time, population aging has led to a shortage of labor, with elderly care spending accounting for over 10% of GDP, suppressing economic growth.
The uneven regional development is highlighted. The eastern EU countries have strong growth, but the core economies in the west are weak, leading to increased disputes over the allocation of EU funds. In addition, climate change such as droughts in the south and floods in the north have caused economic losses of tens of billions of euros.
The above issues are intertwined, forming a vicious cycle that continues to threaten the stability of the EU economy. The root cause of the EU's economic problems can be attributed to the combination of external shocks and internal structural deficiencies.
Among external factors, the rise of global trade protectionism is the primary reason. The US tariff policy stems from its domestic political needs, and the EU, as a major exporting country, is the first to be affected. The Ukrainian crisis has disrupted energy supply, pushed up costs, and exposed the historical legacy of the EU's energy dependence on Russia. Although diversification of energy imports, such as increasing liquefied natural gas (LNG) imports from Norway and the United States, is underway, the transition still takes time and will lead to increased inflation and slower growth in the short term.
The internal structural issues are deeper. The lack of competitiveness in the EU is due to lagging innovation and regulatory burdens. The EU report points out that bureaucracy and fragmented markets hinder business expansion and make financing for small and medium-sized enterprises more difficult. At the same time, only 30% of enterprises in the European Union adopt artificial intelligence, far lower than American enterprises, and digital transformation is relatively slow. In addition, the aging population in the EU has exacerbated labor shortages, and the education system has not kept up with skill demands, leading to structural unemployment problems. Political factors also amplify internal issues. The decision-making mechanism of the European Union is complex, and consensus among the 27 countries is difficult to obtain, resulting in delayed implementation of policies. Due to bureaucratic barriers, the utilization rate of funds for the 'Next Generation EU' is only 60%.
In response, European Commission member in charge of economic affairs, Dombrovskis, stated that given the severe external situation, the EU must take decisive action to unleash its internal growth potential. This means accelerating the competitiveness agenda, simplifying regulation, improving the single market, and promoting innovation.