The Eurozone economy appears to have entered 2025 with modest, yet stable momentum. Preliminary figures expected this week suggest that gross domestic product (GDP) for the region rose 0.2% in the first quarter, matching the performance from the final months of 2024. The data—set for release on Wednesday—may hint at a temporary reprieve from economic headwinds, driven in large part by pre-emptive transatlantic trade activity.

Temporary Trade Windfall Buoys Growth

This recent growth appears to be supported by a wave of last-minute trade activity between Europe and the United States. Businesses across the Atlantic reportedly stockpiled European goods ahead of a new round of U.S. tariffs. These include steep 25% levies on aluminium, steel, and passenger vehicles, alongside a 10% tariff on most other products. Though a broader 25% “reciprocal” tariff has been deferred until July, American importers have moved quickly to pad inventories in anticipation of higher costs.

The result: a notable, though likely short-lived, bump in trade figures for the Eurozone. With trade providing an outsized contribution to the quarter’s growth, this may explain why some analysts, such as those at Société Générale, have issued more optimistic forecasts, projecting a quarterly increase as high as 0.4%. However, most consensus estimates still cluster around 0.2%, pointing to lingering concerns about the durability of this growth.

National Performances: Cautious Optimism

The euro area’s three largest economies—Germany, France, and Italy—are all expected to show 0.2% growth in Q1. For Germany, this would mark a rebound from a 0.2% contraction in the previous quarter, although its year-on-year reading is expected to remain negative at -0.2%. France and Italy, meanwhile, are both slated to improve on their previous readings, with Italy climbing from 0.1% and France recovering from a slight contraction.

Spain continues to lead the pack among the region’s major economies, reporting a 0.6% quarterly increase in GDP—just below the 0.7% consensus, but still a solid figure that follows an upward revision for the previous quarter. Strong domestic demand and service sector resilience continue to support the Spanish economy, helping it outpace its peers.

Outlook: Tariff Troubles Ahead?

Despite the current quarter’s apparent resilience, many economists are casting a wary eye toward the rest of the year. The full implementation of U.S. tariffs could severely affect European exporters, dampen investment, and introduce greater uncertainty into corporate planning.

Deutsche Bank’s forecast reflects this caution, warning that the benefits from tariff frontloading may soon give way to a drag on exports and a dip in business investment. While the Eurozone is still benefiting from a positive credit impulse—thanks in part to looser financial conditions—consumption could falter if geopolitical tensions persist and consumer sentiment dips.

ECB Policy Path: Rate Cuts Still Expected

Given this backdrop, the European Central Bank is widely expected to proceed with a 25-basis point rate cut in June. While the latest figures may suggest underlying resilience, policymakers are likely to remain focused on the broader risks facing the region—from global trade disputes to persistent inflation uncertainty.

The Q1 data offers a mixed picture: a steady handoff from 2024, buoyed by one-off trade factors, but shadowed by growing external pressures. The path forward for the Eurozone will hinge on whether domestic demand can sustain momentum in the face of mounting global challenges.