The economic growth of the Eurozone in the second quarter has significantly slowed down, but it is better than the market's previous expectation of zero growth. The quarter-on-quarter growth rate dropped from 0.6% in the first quarter to 0.1%. The year-on-year growth reached 1.4%, also higher than the expected value of 1.2%.
Previously, to stimulate the economy, the European Central Bank had lowered its key interest rate to 2% over the past 13 months. However, the latest data shows that the economic fundamentals are better than feared, and financial markets believe that the necessity for the European Central Bank to continue easing policy is decreasing. Currently, the market believes that the likelihood of the European Central Bank cutting interest rates again before December is only 50%.
On the 30th, Eurostat released the preliminary GDP figures for the Eurozone, Germany, France, and other countries for the second quarter:
<blockquote>
<ul>
<li>Eurozone second quarter GDP year-on-year preliminary value 1.4%, expected 1.2%, previous value 1.5%.</li>
<li>Eurozone second quarter GDP quarter-on-quarter preliminary value 0.1%, expected 0%, previous value 0.6%.</li>
</ul>
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</blockquote>
<h2>Eurozone second quarter GDP quarter-on-quarter growth of 0.1%</h2>
According to the preliminary flash estimate data released by Eurostat, the seasonally adjusted GDP of the Eurozone grew by 0.1% quarter-on-quarter in the second quarter of 2025. Although this data represents a significant slowdown from the 0.6% expansion in the first quarter, the high growth in the first quarter was largely distorted by U.S. companies importing in advance before tariffs took effect.
The overall economic performance of the European Union is relatively good, with a quarter-on-quarter growth of 0.2% in the second quarter, down from 0.5% growth in the first quarter. In terms of year-on-year data, the Eurozone's GDP grew by 1.4% in the second quarter, while the EU grew by 1.5%, both showing a slight decline from the previous quarter's 1.5% and 1.6%.
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Among the member states, Spain (+0.7%) recorded the highest growth compared to the previous quarter, followed by Portugal (+0.6%) and Estonia (+0.5%). Ireland (-1.0%), Germany, and Italy (both -0.1%) recorded declines. Overall, the robustness of the service sector and the recovery of the manufacturing sector supported the economy, and the latest PMI data also confirmed that business activity is accelerating.
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The German economy contracted by 0.1% quarter-on-quarter in the second quarter of 2025, which met analysts' expectations but showed a significant slowdown from the 0.3% growth in the first quarter. Official data shows that investment in machinery and equipment and construction both declined in the second quarter, while private and government consumption expenditures increased
U.S. tariffs and their impact have been the primary concern facing European economies. According to CCTV News, on July 27 local time, U.S. President Trump stated that the U.S. has reached a trade agreement with the European Union, imposing a 15% tariff on goods exported from the EU to the U.S. However, the trade agreement reached between the EU and the U.S. has sparked strong dissatisfaction from the German and French governments, with leaders from both countries warning that the agreement will cause significant damage to the EU economy.
<h2>Expectations for Interest Rate Cuts Cool</h2>
The resilient performance of the economy is a key factor in the market's change in expectations regarding the European Central Bank's policies. Investors believe that, in the context of the economy being able to self-adjust, the rationale for further interest rate cuts by the central bank is weakening.
Currently, the market believes that the likelihood of the European Central Bank cutting interest rates again before December is only 50%. Some opinions even suggest that, with the acceleration of the economy and potential inflationary pressures rising in the future, interest rates may begin to enter an upward trajectory by the end of 2026.
Improvements in the trade environment also add positive factors to the growth outlook. Although economists estimate that the higher tariffs resulting from the new agreement may ultimately drag down the Eurozone's annual growth rate by 0.2 to 0.4 percentage points, this impact has already been absorbed by most forecasting models. Additionally, Germany plans to significantly increase budget expenditures starting next year for infrastructure and defense construction, which economists believe will largely offset the negative effects of the tariffs.
<h2>Market Reaction</h2>
The euro against the dollar has shown little short-term volatility, currently quoted at 1.1557.
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Economic growth in the Eurozone significantly slowed in the second quarter, but it was better than the market's previous expectation of zero growth, with the quarter-on-quarter growth rate dropping from 0.6% in the first quarter to 0.1%. Year-on-year growth reached 1.4%, also higher than the expected value of 1.2%. The market currently believes that the likelihood of the European Central Bank cutting interest rates again before December is only 50%

- Eurozone's GDP growth slowed to 0.1% quarter-on-quarter in Q2 2025, better than the expected zero growth, with a year-on-year increase of 1.4%.  
- The European Central Bank's interest rate cuts have reduced the necessity for further easing, with market expectations for another rate cut before December now at only 50%.  
- Despite concerns over U.S. tariffs, the overall economic resilience and planned increases in German budget spending are expected to mitigate negative impacts on growth.

The Eurozone's GDP grew by 0.1% in the second quarter, exceeding expectations, and interest rate cut expectations have cooled