Danske Bank economists Sofie Grundvad Pedersen and Rune Thyge Johansen note that Euro area GDP grew 0.3% q/q in Q4 2025, slightly above ECB projections, driven by Germany, Spain and Italy. They highlight mixed early‑2026 signals from PMIs, weak services inflation, and project headline and core inflation below 2% in 2026–2027, with decent growth and stable ECB policy at 2.0%.
Solid activity with subdued price pressures
“The final quarter of 2025 concluded on a strong note, with GDP growth at 0.3% q/q, exceeding ECB staff projections of 0.2%. The growth surprise was driven by stronger-than-expected performance in Germany, Spain, and Italy, while France grew as anticipated, albeit modestly. Private consumption played a key role in driving Q4 growth, which was broad-based across the eurozone.”
“This supports the ECB’s assessment that the economy is in a “good place.” However, as 2026 begins, more recent indicators suggest mixed signals for the economy.”
“The composite PMI declined slightly to 51.3 in January from 51.5 thereby still signalling a modest expansion. While the PMIs surprised to the downside, recent months have seen significant volatility.”
“Headline inflation in January fell to 1.7% y/y, below the ECB 2%-target, from 2.0% in December. This was largely driven by energy inflation, which declined sharply to -4.1% y/y from -2.1%, reflecting a significant base effect.”
“These factors make it difficult to draw firm conclusions from the January inflation print, but we do read it as a weak print due to services.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
