FRANKFURT, Germany: The eurozone closed out 2025 on firmer footing than expected, with domestic demand helping the bloc weather weak exports and heightened uncertainty from U.S. trade policy, data released on January 30 showed.

The economy of the 20-nation currency bloc expanded by 0.3 percent in the fourth quarter, beating expectations for 0.2 percent growth in a Reuters poll, according to figures from Eurostat. Year-on-year growth came in at 1.3 percent, slightly above the consensus forecast of 1.2 percent.

The performance underlined the eurozone's resilience at a time when many had expected it to buckle under pressure from U.S. trade tensions, intensifying competition from China, and the ongoing geopolitical fallout from conflict on its eastern flank.

While industry and exports, traditionally the bloc's primary growth engines, continued to struggle, steady household consumption and more substantial investment helped sustain moderate but consistent expansion throughout the year.

Spain Remains Engine of Growth

Spain once again led the bloc, with its economy growing 0.8 percent in the fourth quarter, well above forecasts. Germany, the eurozone's largest economy, also surprised slightly to the upside, expanding by 0.3 percent, compared with expectations of 0.2 percent.

"The fourth quarter performance (for Germany) is admittedly modest yet still the best quarterly performance in the last three years," said ING economist Carsten Brzeski. "Increasing new orders and falling inventories bode well for at least a soft turnaround in industry."

Italy also exceeded expectations with 0.3 percent growth, while France, weighed down by political instability, expanded by 0.2 percent, in line with forecasts.

Ireland, however, acted as a statistical drag on the bloc after its large multinational sector contracted sharply. Economists cautioned that this reflected accounting effects tied to multinationals rather than a genuine downturn in domestic activity.

2026 off to a Good Start

Early indicators suggest the eurozone entered 2026 with momentum intact. A key business sentiment survey released this week showed an unexpected jump, primarily driven by improvements in France and Germany and supported by gains across all major sectors.

Other fundamentals are also supportive. Industrial activity appears to be stabilising; households have begun to draw down historically high savings; unemployment remains near record lows; and inflation is hovering around the European Central Bank's 2 percent target.

Prospects are further bolstered by Germany's planned surge in spending on infrastructure and defence. While implementation may be gradual, economists expect the fiscal push to begin lifting growth from the second quarter, ending three years of stagnation in Germany and providing spillover benefits to suppliers across the eurozone.

Exports, however, are unlikely to stage a strong recovery. U.S. tariffs, tougher competition from Chinese producers, and the dollar's decline over the past year point to a more lasting shift in global trade patterns.

That leaves the domestic economy to carry the burden of growth. Economists argue that consumption still has room to expand and that trade within the European Union can help offset weaker demand from abroad.

Most forecasts see eurozone growth settling in a 1.2 percent to 1.5 percent range over the coming years, broadly in line with the bloc's estimated potential.

This outlook places the ECB in what some policymakers describe as a rare sweet spot: inflation at target, interest rates at neutral levels, and growth close to potential. Investors, therefore, expect borrowing costs to remain steady through 2026, barring any fresh external shocks.