[PAGE_2]European economies in a waiting and transition phase[/PAGE_2]
[PAGE_6]Eurozone - What if exceptionalism were European?[/PAGE_6]
[PAGE_9]France - Slowly but surely, the light at the end of the tunnel?[/PAGE_9]
[PAGE_13]Italy - 2025: back to reality[/PAGE_13]
[PAGE_16]Germany - Domestic demand offsets fall in net exports[/PAGE_16]
[PAGE_19]Spain - Business gradually returning to normal[/PAGE_19]
[PAGE_23]United Kingdom - Tariffs weigh on the economic outlook[/PAGE_23]
[PAGE_26]Economic and financial forecasts[/PAGE_26]

Paola MONPERRUS-VERONI

Europe's major economies can count on a more sustained momentum in domestic demand, with investment as the driving force.

Paola
 
MONPERRUS-VERONI
Economist

The past quarter has contributed to heighten uncertainty over the growth trajectories of the major economies, which are facing a global shock to confidence and a reorganisation of their relative competitiveness. The American exceptionalism of growth that has long been above potential, even under the influence of a restrictive monetary policy, has been called into question by the new trade policy, which is acting as a negative shock, leading to a slowdown in growth.

Although the European economy will be negatively affected, the asymmetrical nature of the shock makes it less vulnerable. In addition, the desire for greater strategic autonomy on the part of the European economies is taking shape in concrete measures to increase spending on infrastructure and defence, which, by offsetting the negative impact of the trade shock, are putting the Eurozone on an upward growth trajectory, defying the inexorability of a decline in potential growth. All the more reason to put forward the hypothesis of an “European exceptionalism”.

Euro area – A resilience stress test so far successful

Despite sluggish consumption and a more unfavourable external environment, the Euro area recovery is continuing. Investment is expected to be the driving force behind the acceleration in growth, supported by European funds, defence spending and German public spending.

Paola MONPERRUS-VERONI – Euro area Manager

 

France – Political instability takes hold, activity holds up

Growth surprised to the upside in the second quarter of 2025 and activity is expected to continue to grow moderately in the second half of the year. Despite the possible wait-and-see effects generated by uncertainty on the behaviour of private agents, activity is expected to accelerate on an annual basis in 2026. The trend will be driven by the impacts of German government measures and the increase in EU defence spending, as well as by an acceleration in private consumption and the resumption of business investment domestically.

Marianne PICARD – France Economist

 

Italy – An illusion of resilience

In an uncertain international environment, the Italian economy is struggling to regain momentum. Growth forecasts for 2025 have been revised downwards, reflecting the growing impact of US tariffs on exports. Despite ongoing difficulties in the industrial sector, investment remains surprisingly robust in 2025. Consumption remains the weak link, hamperedby a less dynamic labour market and purchasing power that is still under pressure. For 2026, we expect a slight acceleration in growth, which will benefit, among other things, from the fiscal spillovers of the German Plan, whose knock-on effects will gradually support Italian economic activity. 

Sofia TOZY – Italy, Scandinavian countries Economist

 

Spain – Growth refuses to slow down

Rising wage costs, inflation contained by margin compression, and the gradual moderation of public investment define Spain's new economic framework. Domestic demand remains the primary driver of activity, supported by the resilience of private consumption and the dynamism of residential and productive investment, whilst public consumption maintains a moderate growth profile. External demand, weakened by the slowdown in global trade and the softening of goods exports, will limit its contribution to GDP, despite the persistent strength of services. The Spanish economy is thus entering a phase of growth more in line with its potential, characterised by a gradual normalisation of expansion rates.

Ticiano BRUNELLO – Spain, Portugal, Greece Economist

 

United Kingdom – More fiscal pain to come 

After a relatively strong first half of the year, the British economy is losing momentum. Household consumption growth is weak, and its fundamentals will be less favourable in the future. Households will need to rely more on their savings to maintain spending. The labour market is deteriorating and is therefore less conducive to wage increases. The government is expected to announce further tax increases in the Autumn Budget. The context remains inflationary, and the BoE is concerned about rising household inflation expectations. Future rate cuts may have to wait.

Slavena NAZAROVA – United Kingdom, United States Economist