Eurozone Defies the Slowdown as Growth Holds and Inflation Cools

The euro area ended last year on a stronger footing than many had expected, showing resilience despite a challenging global backdrop. Economic activity remained steady, while inflation pressures continued to ease, reinforcing confidence that the region is navigating a controlled slowdown rather than a sharp downturn.


A Strong Finish to the Year

Economic growth in the final quarter of 2025 slightly exceeded expectations, supported by solid performance in several major economies. Consumer spending played a central role in sustaining momentum, helping offset lingering weakness elsewhere. The overall picture suggested that domestic demand remains resilient, even as households and businesses stay cautious.


Early Signals Send Mixed Messages

As 2026 begins, incoming indicators paint a more nuanced picture. Some measures continue to point to expansion, while others hint at slower momentum. This combination reflects an economy that is still growing, but at a more measured pace, shaped by uncertainty over global trade, energy markets, and financial conditions.


Inflation Loses Momentum


Price pressures have softened noticeably, with inflation slipping below key target levels at the start of the year. The decline was driven largely by lower energy costs, while services-related inflation also showed signs of cooling. Although short-term readings can be volatile, the broader trend suggests easing pressures across the economy.


Policy Comfort Zone


The balance between steady growth and moderating inflation has placed policymakers in a relatively comfortable position. With price pressures under control and activity holding up, there is little urgency for abrupt policy shifts. Instead, the focus remains on maintaining stability and supporting sustainable growth.


Outlook: Stability Over Shock


Looking ahead, the euro area appears set for a period of moderate but stable expansion. While risks remain—from global economic uncertainty to shifting trade dynamics—the combination of resilient growth and cooling inflation provides a solid foundation. For now, the region seems to be weathering economic headwinds better than many had feared.