The euro area is expected to broadly mirror this trend, with real GDP growing by 1.3 per cent in 2025, 1.2 per cent in 2026 and by 1.4 per cent in 2027.
The Autumn 2025 Economic Forecast for the EU projects real GDP to grow by 1.4 per cent in 2025 and 2026, edging up to 1.5 per cent in 2027.
Real GDP in the euro area may grow by 1.3 per cent in 2025, 1.2 per cent in 2026 and by 1.4 per cent in 2027.
Eurozone inflation may fall to 2.1 per cent in 2025, and then hover around 2 per cent in 2026 and 2027.
EU inflation is set to drop to 2.2 per cent in 2027.
At the same time, potential growth is set to go down a notch from 1.5 per cent in 2024 to 1.3 per cent in 2027 in the EU, and from 1.4 per cent to 1.2 per cent in the euro area, as growth in the working age population slows.
The EU economic growth exceeded expectations in the first nine months this year, with real GDP growth outperforming the annual expansion projected in spring.
This better-than-expected performance was initially due to a surge in exports ahead of anticipated tariff increases, but investment in equipment and intangible assets also performed more strongly than expected—most notably in Ireland, but also in other countries.
Inflation is forecast to continue its decline in 2025, falling to 2.1 per cent in the euro area, and then hover around 2 per cent over the next two years. In the EU, inflation is set to remain marginally higher, falling to 2.2 per cent in 2027, an official release said.
“Continued growth in the third quarter is testimony to the resilience of the European economy and its ability to navigate unprecedented shocks,” the release noted.
Data from the European Commission surveys and purchasing manager’s indices (PMIs) in October suggest continuing growth momentum in the coming quarters.
Key conditions for an expansion in economic activity remain in place, despite a challenging external environment and persistent uncertainty, the Commission said.
Growth is supported by a resilient labour market, decreasing inflation and favourable financing conditions. In addition, policy support from the Recovery and Resilience Facility and other EU funding is cushioning the effect of tighter fiscal policy in several member states.
Looking ahead to 2026, the growth of the EU’s export markets is expected to slow down due to high global tariffs, leading to slower growth in goods exports.
A rebound in goods export growth is anticipated in 2027, partly premised on the EU’s tariff advantage in the US market compared to other major trading partners.
Amid continued slowdown of employment growth, the EU economy generated jobs for an additional 380 000 people in the first half of 2025. Employment is set to continue expanding moderately by 0.5 per cent in 2025 and 2026, before decelerating to 0.4 per cent in 2027.
The unemployment rate is anticipated to edge down further from 5.9 per cent in 2025 and 2026 to 5.8 per cent in 2027. In the context of an overall still tight labour market, immigration from outside the EU is expected to continue playing an increasingly important role in meeting labour demand.
Wage growth in the EU is set to decelerate from 4 per cent in 2025 to 3.3 per cent in 2026 and 3.1 per cent in 2027. The upturn in productivity, coupled with wage moderation, is projected to lead to a significant slowdown in unit labour costs over the next two years.
The EU’s general government deficit is projected to increase from 3.1 per cent of GDP in 2024 to 3.3 per cent in 2025 and 2026 and 3.4 per cent in 2027, on a no-policy change basis. Similarly, in the euro area the deficit is set to increase from 3.1 per cent of GDP in 2024 to 3.2 per cent in 2025, 3.3 per cent in 2026 and 3.4 per cent in 2027.
This increase is driven by rising defence spending in the EU from 1.5 per cent of GDP in 2024 to 2 per cent in 2027.
Fibre2Fashion News Desk (DS)