Europe Weekly Focus

• We expect that the euro area economy will continue its slow recovery in 2025 with muted growth of 0.9%. Combined with net fiscal consolidation, uncertainty stemming from US trade policy and domestic politics is likely to weigh on activity. The drag from these factors will be countered to an extent by steady consumer spending and investment, with support from lower interest rates. We see the ECB moving quickly in pulling rates back to a neutral setting as inflation normalises.
• The upcoming German election could be net positive for the growth outlook by paving the way for more meaningful policy direction and some loosening of fiscal restraints. That would be a clear contrast with the situation in France, where political uncertainty is set to continue to weigh heavily on the growth outlook. While we see a narrow path for the 2025 budget to be passed (with some limited fiscal consolidation), a range of future flashpoints will prevent a return to any sort of stability.
• We have revised our UK forecast for 2025 down to 1.1% on the back of weak carryover from last year as activity ground to a halt around the new government’s first budget. As noise around that event fades, we suspect that the focus will shift towards the significant degree of front‑loaded spending, which is likely to result in firmer growth in H2 this year (if enacted on the scale and timeframe initially planned).

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