The euro area surprised in the second quarter with 0.4% growth, driven by AI investment, state spending and one-off supports, despite high energy costs and the US-Iran conflict. The 21-country bloc, home to around 360 million people, also accelerated to 1.0% year on year.
Eurostat data published on Thursday showed growth in the currency union was twice the 0.2% forecast in a Reuters poll. Compared with the same period in 2025, expansion reached 1.0%, far above the 0.5% analysts had expected. Many of the largest economies in the bloc also beat predictions. The second quarter had initially been seen as the start of a rebound after a turbulent year, but rising energy costs weakened that narrative; most forecasters now put full-year growth below 1%, under the bloc’s already limited potential.
That does not change the relative picture. The euro area still looks weak next to the United States, where growth is likely to exceed 2% this year, partly because of heavy and, in some eyes, potentially unsustainable private investment in artificial intelligence.
Resilience aided by AI, government spending and industry
Thursday’s figures nevertheless showed a bloc that has been more resilient than in previous shocks, including the pandemic and Russia’s invasion of Ukraine. Unemployment held at 6.3% in June, contrary to forecasts of an improving jobs market, and the economic sentiment indicator rose more than expected thanks to stronger industrial and services confidence.
Corporate AI investment has surged in Europe too, while household consumption was reasonably solid and Germany’s government has slowly started spending more on defense and infrastructure after years of promises. Industry, long a weak spot, also handled high energy costs surprisingly well, reversing its previously persistent drag on growth.
Country results and temporary factors
Germany, the world’s third-largest economy, France and Italy all grew by 0.2% quarter on quarter. Spain remained a leader among the larger EU states with 0.7%, above the 0.6% expected, and the Netherlands posted 0.4%, twice the forecast.
Commerzbank economist Jörg Krämer pointed to the unresolved conflict in the Middle East as a risk for the rest of the year.
– Recent escalation of the war in the Middle East means it will probably take more time before the US and Iran reach a final agreement – said Krämer.
– Still, the strong data published on Thursday suggest Germany may grow by 1.0% this year instead of the 0.6% recorded earlier – he added.
The latest expansion may owe something to events that will not repeat themselves, however. High energy costs and raw-material shortages in Asia may have hit companies there harder, pushing some buyers toward European producers. Some orders may have been pulled forward out of fear that shortages would intensify later in the year.
A big chunk of the bloc’s quarterly number came from Ireland, where GDP jumped 3.9%, driven by international information technology and communications companies based there for tax reasons.
The industrial rebound and Ireland’s surge may not be durable, and the third quarter is expected to be difficult. The conflict is still dragging on, and expensive energy is gradually showing up in higher prices for petrol, air travel and holidays. Inflation could erode household incomes, while higher interest rates from the European Central Bank put more pressure on consumers.
Source: WNP.PL, Photo: ilolab / Shutterstock
