EU urges focus on domestic growth drivers but stays upbeat on eurozone

Eurozone growth has outperformed expectations this year and the momentum is set to continue, said the European Commission on Monday.

According to the EU’s Autumn Economic Forecast, output will rise by 1.3% in the eurozone in 2025, higher than a prediction given in May. The growth rate is forecast at 1.2% in 2026 and 1.4% in 2027.

The Commission noted that the eurozone’s output is boosted by strong domestic demand, despite a challenging external environment.

Tariff barriers from the US remain a cause for concern, and uncertainty surrounding policies from the Trump administration continue to cloud the global outlook.

“Nevertheless, tariffs on EU exports remain lower than those applied to several other major global players,” said the Commission. “This represents a modest relative advantage for the EU economy, albeit in a context of weak global goods trade and a strong euro tempering foreign demand.”

In late July, Brussels and Washington agreed to a 15% tariff on most goods imports into the US, allowing EU shipments to rebound in September.

The EU’s forecast assumes that all country- and sector-specific tariffs implemented by the US at the end of October will be in place throughout the forecast horizon.

Moving forward, economy commissioner Valdis Dombrovskis said in a press briefing on Monday that the EU must continue “to look to domestic drivers to fuel growth” as global trade barriers remain at historic highs. “Europe must rely on Europe,” he added.

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Eurozone investment is set to regain momentum in the coming years, said the Commission, mainly driven by non-residential construction and capital spending on equipment.

Dombrovskis also praised the resilience of Europe’s labour market. EU employment is set to continue expanding moderately, by 0.5% in 2025 and 2026, before decelerating to 0.4% in 2027.

Wage growth in the EU is set to slow but remain above inflation, modestly improving household purchasing power.

Regarding inflation in the eurozone, the Autumn Forecast places this at 2.1% in 2025, and predicts that price pressures will hover around the ECB’s 2% target in the near term.

During its last meeting, the European Central Bank held its key interest rate at 2%, and further cuts are not expected anytime soon.

Despite the raft of positive predictions from the Commission, government deficits are expected to rise in the EU over the coming years.

The EU general government deficit is expected to increase from 3.1% of GDP in 2024 to 3.4% by 2027, partly due to an increase in defence spending.

The EU debt-to-GDP ratio is projected to rise from 84.5% in 2024 to 85% in 2027, with the eurozone ratio set to rise from around 88% to 90.4%.