Euro area growth slowed sharply in the second quarter of 2025, with GDP edging up just 0.1 percent compared with 0.6 percent in the first quarter. On an annual basis, growth eased slightly to 1.5 percent from 1.6 percent, reflecting weaker momentum across key economic drivers.

Household spending, traditionally a stabiliser, barely grew (0.1 percent), while government expenditure provided modest support (0.5 percent). Investment was the primary drag. Gross fixed capital formation fell 1.8 percent after a substantial 2.7 percent rise in the first quarter, subtracting 0.4 percentage points from growth. External demand also disappointed, as exports dropped 0.5 percent and imports stagnated, leaving a net trade contribution of minus 0.2 points. Interestingly, the most significant boost came from inventory changes, which added 0.5 points, a potentially unsustainable source of growth that may mask underlying weaknesses.

With household demand flat, investment faltering, and exports losing traction, the euro area risks slipping into stagnation if structural weaknesses persist. The reliance on inventories as a growth driver underscores that the second quarter's expansion was more technical than robust, highlighting the challenge of sustaining momentum in an uncertain global environment. The latest update takes the RPI to minus 7 and the RPI-P to minus 20, meaning that economic activities adjusted for prices continue to underperform the expectations of the euro area.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy and is usually released early in the third month after the reference period. Following two provisional (flash) estimates containing only limited information, this report provides the first full look at the national accounts for the region.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Currency traders prefer healthy growth and higher interest rates. Both typically lead to increased demand for a local currency. However, inflationary pressures can put downside pressure on a currency regardless of growth. For example, if inflation remains above the ECB’s near-2 percent target for long enough, worries about the impact of lost competitiveness on the merchandise trade balance could prompt investors to switch to an alternative currency.