Analysis: Euro Area Economy Stronger Than Expected, But Potential Growth Momentum Has Significantly Weakened

On April 30th, the data indicates that the Eurozone economy witnessed a faster growth than anticipated in the first quarter, presenting a mild improvement at the outset of 2025. Eurostat announced that driven by the swift economic growth in Spain, the GDP of the Eurozone in Q1 increased by 0.4%, outperforming the expected 0.2%. Nevertheless, the potential growth trend has significantly weakened as the data was skewed by Ireland's 3.2% growth, mainly attributed to the activities of large foreign companies in Ireland for tax purposes. Germany, the largest economy in Europe, only saw a 0.2% growth in its GDP, France grew by 0.1%, and Italy grew by 0.3%. This indicates that excluding Ireland, the economic growth of the Eurozone is close to the economists' expectation of 0.2%. The European Central Bank has stated that apart from the trade war, the financial market turmoil triggered by U.S. policies and the widespread deterioration of market sentiment will all restrain economic growth. Although the European Central Bank has been rapidly reducing interest rates in an attempt to shield the Eurozone from the impact and may cut rates again in June, in the face of such a severe economic downturn, the ECB is relatively powerless. (FX678)