EMU GDP Growth Picks up in 2025-Q1

EMU pace steps up- Growth in the European Monetary Union has stepped up in the first quarter of 2025 to a 1.4% annualized pace after slipping into a 1% growth rate in the fourth quarter of 2024. Year-over-year European Monetary Union growth at 1.2% is the same as it was in the fourth quarter of 2024.

Across the Euro Area- EMU growth as well as across the returns of the early reporters of GDP; there are seven countries that have reported GDP for early release. We see deceleration in growth in Ireland, the Netherlands, and Spain. However, some these are impressive decelerations! In the case of Ireland growth decelerates to a 13.5% annualized rate in Q1 from 15.3% in Q4; even in Spain the deceleration is from a 2.9% pace in the fourth quarter to a 2.3% pace in the first quarter. The final deceleration is from the Netherlands from a 1.1% growth rate in the fourth quarter to a 0.4% annual rate in the first quarter.

Sometimes, small is good Further parsing the growth rates, the four largest European Monetary Union economies (Germany, France, Italy, and Spain) continue to struggle. The weighted average growth rate for the four-largest economies is 1% in the first quarter; that is an improvement from 0.2% in the fourth quarter of 2024, and compares to 1% in the third quarter of last year as well. The first quarter year-over-year growth rate for Big-Four is 0.7%, the same as it was in the fourth quarter of 2024 (0.8% in Q3 and Q2 of 2024). There is not much change in Big-Four economy growth over the past year. For the rest of the European monetary union growth, quarterly growth decelerated in the first quarter to 2.6% from a very firm 3.2% in the fourth quarter, but even that had been a deceleration from the 3.5% annual rate in the third quarter of 2024. The rest of the monetary union posted a growth rate measured year-over-year of 2.6% in the first quarter compared to 2.3% in the fourth quarter and 1.4% in the third quarter of last year. The smaller economies are making growth progress. It is the large economies in the monetary union that are struggling the most and that are dragging down the growth rate for the monetary union.

Growth rate rankings- If we rank the growth rates of the European monetary union and the early individual reporters on year-over-year growth and on data back to 1977, we see that the monetary union itself has a growth ranking in the first quarter in its 37th percentile; a 50% ranking would put it at its median for that period- it is short of that. Above-median growth is registered in Ireland with an 89% standing, and in the Netherlands with the 62-percentile standing. Spain also has an above-median result with a 56.5 percentile standing; the rest of the countries are below 50% with Italy the closest to its median at a 47.8 percentile standing. Germany has a 20.7 percentile standing, France had a 26.1 percentile standing, Belgium is at a 29.3 percentile standing. The four largest monetary union economies grouped together have a growth rate with a 26.1 percentile standing while the rest of the monetary union logs of growth rate with a 59.8 percentile standing, significantly above the median of 50%.

A steep step-back for the U.S. This step-up in growth comes as the U.S. is running out of steam. The U.S. growth rate for the first quarter sank to -0.3% (q/q s.a.a.r.) largely on strong imports, substantially because of pending U.S. tariff policy and goods trying to get in under the wire before the bell tolls for tariff-time (imports subtract from GDP). This was a sharp deterioration from a 2.4% growth rate in Q4 2024 and 3.1% in Q3 2024. The U.S. has a 2.1% growth rate year-over-year, still relatively enviable by the standards of the monetary union members. Still, that quarter-to-quarter drop in the pace of growth from Q4 2024 to Q1 2025 has been weaker since Q1 2022.

The outlook…Look out! The global economy is in a period of sorting out because of U.S. tariff policy creates uncertainty; the uncertainty that's created muddies the outlook for output and inflation and therefore for monetary policy for the European Monetary Union as well as globally. So this is going to be a period when we're going to have to watch developments very closely because things are happening…they're changing… and there is very little in the way of strong expectations about what happens next, except that everybody agrees we don't know what it’s going to be. Stay tuned to what could turn out to be an adventurous year ahead.

Some outlook traction for EMU For the monetary union, there are some things that we can be a little bit surer about for the year ahead and that is there will be a step up the military spending. However, a lot of the armaments that are bought by the countries in the monetary union are not made there and so there is a sense that the spending that's expected from monetary union members (each of whom makes their own fiscal choices) may not fully turn out to be stimulus for their economies. On the other hand, with the change in progress for them to provide for their own security, we could see that the defense sectors in Europe are going to expand their ability to create output.