Eurozone Q2 GDP Preview: Euro Losing Momentum, Likely to Enter a Fluctuation Range

TradingKey - On 14 August 2025, the eurozone will release its Q2 GDP data. Market consensus expects that the quarterly growth rate will slow to 0.1% in Q2, down from 0.6% in Q1, which will cause the year-on-year figure to drop by 0.1 percentage points compared to the previous reading.

The primary reasons behind the economic slowdown are twofold: First, the positive effects from European companies’ "rush exports"—a strategy adopted to beat the implementation of U.S. tariff measures—have gradually faded. Second, as the impact of U.S. tariffs on global trade continues to unfold, the overall economic growth of the eurozone has been dragged down accordingly.

Looking ahead, the eurozone economy still faces persistent downside risks, with the core driver being that tariff provisions in the new EU-U.S. trade agreement will undermine the export competitiveness of European enterprises. Given the weak economic outlook and persistently low inflation levels, the European Central Bank (ECB) is expected to maintain a relatively accommodative monetary policy stance.

In the foreign exchange market, since February this year, the US Dollar Index has come under pressure and declined due to the global trend of de-dollarisation, which in turn has driven the EUR/USD exchange rate to rise continuously. Looking ahead, as the slowdown in the eurozone's economic growth and the ECB's continued interest rate cuts form a superimposed effect, we predict that the euro's upward momentum may weaken, and this currency pair will most likely enter a fluctuation range.

Source: TradingKey

Main Body

On 14 August 2025, the eurozone will release its Q2 GDP data. Market consensus expects that the quarter-on-quarter growth rate for Q2 will slow to 0.1% from 0.6% in Q1, causing the year-on-year figure to decline by 0.1 percentage points compared to the previous reading (Figure 1). We concur with this market expectation. Notably, the eurozone already published the flash estimate of this data on 30 July, and the July flash figure aligns with the expected value set to be released in August.

Figure 1: Consensus Forecasts

Source: Refinitiv, TradingKey

The eurozone economy is projected to grow merely by 0.1% quarter-on-quarter in the second quarter, marking its lowest quarterly growth rate since the first quarter of 2024 (Figure 2). This slowdown can be primarily attributed to two key factors: First, the positive effects from European companies' "export rush"—a strategy to ship goods ahead of the implementation of U.S. tariff measures—have gradually faded. Second, as the impact of U.S. tariffs on global trade continues to unfold, the overall economic growth momentum of the eurozone has been dampened accordingly.

There are divergences in economic performance across countries within the eurozone. Specifically, Germany and Italy are projected to see negative quarter-on-quarter growth in real GDP during the second quarter. Beyond lacklustre export performance, these two countries face unique domestic factors contributing to their economic weakness: Germany's economy is primarily under pressure due to sluggish investment in the machinery and construction sectors, though household and government spending continue to provide some support; Italy is experiencing an economic slowdown driven by insufficient domestic demand and a deceleration in industrial activities.

On the other hand, Spain's economy is expected to deliver a standout performance in the second quarter, driven by robust consumer spending trends and a gradual recovery in corporate investment. Meanwhile, France's economy is also projected to show a relatively positive trajectory. However, its growth remains heavily reliant on increased corporate inventories, with actual domestic demand and trade continuing to act as drags on GDP. Based on this, we believe that the short-term strength of France's economy is unlikely to be sustained over the medium term.

Looking ahead, the eurozone economy still faces the risk of a sustained downturn, with the core trigger being that tariff provisions in the new EU-U.S. trade agreement will weaken the export competitiveness of European enterprises. In the short term, such an impact may weigh on economic growth in European countries; in the medium to long term, it could further exacerbate the shift of European manufacturing to the U.S., becoming a drag on the prospects of Europe’s economy. Meanwhile, as the EU has pledged to increase investment in the U.S., the development of local industries and employment conditions in Europe may be negatively affected as a result.

Figure 2: Eurozone Real GDP (%)

Source: Refinitiv, TradingKey

In light of a sluggish economic outlook and inflation remaining at relatively low levels (Figure 3), the European Central Bank (ECB) is anticipated to stick to a fairly loose monetary policy direction. Since it began cutting interest rates in June 2024, the central bank has so far lowered its policy rates by a cumulative 235 basis points (Figure 4). After the ECB opted to leave policy rates steady on 24 July, we conjecture that it will once again enter a phase of continuous rate cuts starting from September, and by the first half of 2026, the eurozone is set to see a low-interest-rate environment.

Figure 3: Eurozone CPI (%, y-o-y)

Source: Refinitiv, TradingKey

Figure 4: ECB Policy Rate (%)

Source: Refinitiv, TradingKey

In the foreign exchange market, since February this year, the US Dollar Index has come under pressure and declined due to the global trend of de-dollarisation, which in turn has driven the EUR/USD exchange rate to rise continuously. Looking ahead, as the slowdown in the eurozone's economic growth coincides with the ECB's ongoing interest rate cuts, forming a combined effect, we predict that the euro's upward momentum may weaken, and this currency pair will most likely enter a fluctuation range.

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