European Economic outlook

June 2025

• Europe faces a modest growth outlook in the short term, with GDP growth expected to increase by around 0.9% in 2025.
• There are growth hotspots. Spain has been a standout performer. And many Central and Eastern European (CEE) economies are expected to continue growing at above-average rates.
• Lower energy prices and weaker demand could result in the ECB cutting rates in the second half of 2025 as inflation returns closer to its 2% target.
• US trade tariffs will have a significant impact on the economic outlook. A renewed escalation could see GDP fall1.4% in Ireland by 2026.
• The trade deal with the US will result in the UK avoiding the direct impact of any trade tariff escalation. But supply chain disruptions and a general economic downturn will be inevitable, which is likely to create an additional drag on economic growth.
• A changing geopolitical environment is driving a shift in European defence spending, with governments across the continent announcing plans to increase defence spending. However, competing fiscal pressures will limit the scale of the spending increase.