The economic outlook for the euro area is characterized by significant uncertainties, primarily stemming from ongoing trade tensions and global economic volatility.

For the entire year of 2025, real GDP growth is projected to average 0.9%, supported by stronger-than-anticipated performance in the first quarter, attributed in part to the frontloading of exports in anticipation of forthcoming tariffs.

The impact of increased U.S. tariffs on EU goods, currently set at 10%, is estimated to persist throughout the projection period, adding pressure to euro area exports and investment, while having a more subdued effect on consumption.

However, the introduction of new fiscal measures, particularly in Germany aimed at enhancing infrastructure and defense spending, is expected to bolster domestic demand starting in 2026.

Annual GDP growth is expected to progress to 1.1% in 2026 and 1.3% in 2027. This projection remains unchanged from earlier forecasts for 2025 but reflects enhanced activity mostly offset by ongoing trade tensions and a stronger euro, which has been revised up against the U.S. dollar since earlier assessments.

Consequently, growth estimates for 2026 have been down-adjusted by 0.1 percentage points, while projections for 2027 remain stable.

Inflation, as measured by the Harmonised Index of Consumer Prices (HICP), is anticipated to remain below the 2% target in the near term.

A decline in inflation is forecasted for 2025, reaching a low of 1.4% in the first quarter of 2026 before stabilizing back at 2.0% in 2027. This downward trend is particularly influenced by a reduction in energy prices due to falling oil and wholesale natural gas prices.

HICP inflation excluding energy and food is also expected to decrease, largely driven by easing services costs and declining wage pressures.

The international environment continues to be impacted by increased U.S. tariffs, which have significantly affected global economic activity.

Global real GDP growth is predicted to slow to 3.1% in 2025, down from 3.6% in 2024, followed by further dips to 2.9% in 2026, eventually stabilizing at 3.2% in 2027. These projections indicate a deteriorating growth outlook across major economies, notably in the United States and China, as well as others closely tied to U.S. exports.

In terms of global trade, a marked slowdown is expected, with growth decreasing to 3.1% in 2025 and 1.7% in 2026. This drop is partly due to a surge in U.S. imports at the beginning of 2025 as businesses attempted to mitigate the anticipated effects of tariffs, followed by a more tempered trade environment moving forward.

The revised projections for euro area foreign demand indicate a decline to 2.8% in 2025, further weakening to 1.7% in 2026, before a recovery in 2027. These adjustments reflect the impacts of changing tariff dynamics between the U.S. and its trading partners and highlight the complex interplay of international trade policy.

Globally, inflation is projected to decrease gradually, with an expected moderation to 3.3% in 2025 from 4.0% in 2024, and further declines to 2.8% in 2026 and 2.5% in 2027. While inflationary pressures in advanced economies, including the U.S. and the U.K., are noted to have increased, inflation stability is expected overall in the context of broader economic adjustments.

External variables, including tariff policies and geopolitical developments, remain essential factors influencing the euro area's economic trajectory, with potential scenarios of mild or severe trade policy changes posing different growth and inflationary outcomes.

Under a mild scenario, wherein tariffs between the U.S. and EU are removed, growth may improve by 0.3 to 0.4 percentage points.

Conversely, in a severe scenario characterized by escalated tariffs, euro area growth would weaken significantly.

Key assumptions underlying these projections include notably lower anticipated prices for commodities, particularly oil and natural gas, alongside a stronger euro exchange rate, with long-term interest rates seeing incremental increases over the projection horizon.