Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 25
RHYTHMIC REASONING | TEMPO, TIMING AND TUNING
E U R O ZO N E
Juan Manuel Herrera Betancourt
Senior Economist, Investment Strategy
2024
2025f
2026f
GDP Growth
0.4%
0.8%
1.2%
1.0%
Inflation
2.2%
2.4%
2.0%
1.8%
Unemployment
6.2%
6.4%
6.3%
6.3%
Budget Bal.
-3.2%
-3.2%
-3.2%
-3.5%
Latest
2024
1-yr fwd
2-yr fwd
3-mo yield
2.0%
2.7%
2.1%
2.4%
10-yr yield
2.7%
2.4%
2.8%
2.9%
Yield curve slope
0.7%
-0.4%
0.7%
0.5%
Source: Scotia Wealth Management, Bloomberg Finance LP.
"Latest" values are as at September 30, 2025 and, for data other than bond
yields, pertain to the most recent monthly, quarterly, or annual reading
available on this date. GDP and inflation forecasts are based on Scotiabank
Economics forecasts dated September 11, 2025. Remaining forecasts are
based on median consensus estimate compiled by Bloomberg | 2024 inflation
and unemployment are based on the average YoY rates for each month of
the year. | 2024 yields are as at December 31, 2024. Forward periods are
relative to September 30, 2025 and are based on forward market pricing.
KEY CONCLUSIONS
•
•
•
The Eurozone economy has avoided feared 25%+ U.S. tariffs,
while benefitting from a surge in exports in 1Q25 due to
tariffs front-running, boosting 2025 growth estimates.
Past trade boosts aside, modest growth is now expected
to last into 2026 as the bloc remains constrained by a high
—even if defined—U.S. tariff rate of 15%, with pockets of
headwinds such as political unrest in France.
Germany’s fiscal effort should ramp up more clearly in 2026
to act as the country’s main growth engine, while the ECB is
expected to stand pat over the forecast horizon.
The Eurozone economy has seemingly managed to avoid a
negative growth quarter in 2025, with a surge in exports in 1Q25
due to tariffs front-running boosting growth estimates for the year.
However, early-year exports-driven strength has been followed by
only modest growth expected to last into 2026, as the bloc remains
constrained by a high—even if defined—U.S. tariff rate of 15%, with
pockets of headwinds such as political unrest in France.
On the flip side, Germany’s sudden announcement of a new
chapter in fiscal policy, leaving behind years of conservative public
finances management, has set up firmer growth starting from
2026—with positive spillovers for the Eurozone as a whole. Public
stimulus should act as the country’s main growth engine, making
up for manufacturing weakness that should continue due to high,
albeit settled (for now), U.S. tariffs rates.
The tariffs rollercoaster has made it difficult to pin down economic
forecasts for the Eurozone, but things are looking smoother from
here on out. At Scotiabank Economics, we had kicked off 2025
expecting that the Eurozone economy would expand by only
0.7% matching a comparably soft GDP gain in 2024, already
incorporating tariff headwinds and sluggish domestic conditions.
In April, the Liberation Day announcement pushed us to expect
only a 0.5% rise.
Today, we estimate that Eurozone GDP will grow by 1.2% in 2025,
a much better outcome than what we had expected upon the
election of Trump in the U.S., although remaining a touch below
its pre-pandemic decade average of 1.4%, and slowing from the
1.5% expansion it recorded in 1H25 (Fig. 1). However, the largest
economies in the currency bloc, Germany, France, and Italy are
seen expanding by fairly weak paces of 0.2%, 0.7%, and 0.5%
respectively, as the likes of Spain, Greece, and Portugal to catch up
to their core Eurozone peers in the post-pandemic period.
Fig. 1: Muted growth in Germany, Italy, and France
4%
% YoY GDP growth, 1H25
Latest
3%
2%
1%
0%
GE
IT
FR
NL
SP
Euro
Euro
ex. IE
Source: Eurostat, Scotia Wealth Management
The first upside surprise has been Eurozone export volumes
jumping by 1.7% in 1H25 compared to 2H24, counteracting a
roughly two-year trend of negative or feeble sequential growth in
real exports. The early-year surge in exports translates into a high
starting point for measuring GDP growth on a year-on-year basis
25 of 62
