The European Central Bank released updated economic projections showing a gradual recovery path for the eurozone economy through 2025-2027. GDP growth is forecast at 1.9% for 2025, revised up from 1.7%, reflecting better-than-expected momentum in services and manufacturing. The 2026 projection stands at 2.1%, with 2027 at 1.8%. Inflation projections show core HICP at 2.2% for 2025, gradually converging to the 2% target by late 2026. The ECB's assessment highlights several key developments. Manufacturing PMI has returned to expansion territory at 50.8, the first reading above 50 in eight months, driven by improving supply chains and rising new orders. Services activity remains robust at 53.7, supported by tourism and business services. Labor markets show resilience with unemployment at 6.4%, near historical lows, though wage growth at 4.1% raises concerns about persistent inflation pressures. Investment activity is recovering, aided by NextGenerationEU fund disbursements and green transition investments. However, challenges persist including energy price volatility, geopolitical tensions affecting trade, and divergent performance among member states. Germany's economy remains sluggish while Spain and Italy show stronger momentum. The ECB maintained its dovish stance, with the deposit rate at 3.75% following recent cuts. Markets expect two additional 25bp cuts by year-end. The report concludes that while risks remain balanced, the eurozone's recovery appears increasingly entrenched.
Eurozone Focus: Updated ECB Economic Projections - Gradual Recovery Path
Overview
The European Central Bank released updated economic projections showing a gradual recovery path for the eurozone economy through 2025-2027. GDP growth is forecast at 1.9% for 2025, revised up from 1.7%, reflecting better-than-expected momentum in services and manufacturing. The 2026 projection stands at 2.1%, with 2027 at 1.8%. Inflation projections show core HICP at 2.2% for 2025, gradually converging to the 2% target by late 2026. The ECB's assessment highlights several key developments. Manufacturing PMI has returned to expansion territory at 50.8, the first reading above 50 in eight months, driven by improving supply chains and rising new orders. Services activity remains robust at 53.7, supported by tourism and business services. Labor markets show resilience with unemployment at 6.4%, near historical lows, though wage growth at 4.1% raises concerns about persistent inflation pressures. Investment activity is recovering, aided by NextGenerationEU fund disbursements and green transition investments. However, challenges persist including energy price volatility, geopolitical tensions affecting trade, and divergent performance among member states. Germany's economy remains sluggish while Spain and Italy show stronger momentum. The ECB maintained its dovish stance, with the deposit rate at 3.75% following recent cuts. Markets expect two additional 25bp cuts by year-end. The report concludes that while risks remain balanced, the eurozone's recovery appears increasingly entrenched.