Eurozone Economy Posts Steady Growth, But a Weakening Dollar Poses New Export Threat

FRANKFURT, Germany — Defying earlier predictions of a downturn, the Eurozone economy showed resilient, if modest, growth at the close of 2025. Yet, a new challenge is emerging from currency markets that could stifle the recovery's momentum.

Data released Friday by Eurostat showed the economy of the 21 nations sharing the euro expanded by 0.3% in the fourth quarter, unchanged from the third quarter. Year-on-year growth stood at 1.3%. The figures confirm the bloc has narrowly avoided a recession that many feared was imminent earlier in the year amid transatlantic trade tensions.

Those fears were sparked by threats from U.S. President Donald Trump to impose crippling tariffs on European goods. A subsequent agreement, capping tariffs at 15%, provided businesses with enough certainty to proceed with investment and hiring plans, supporting the quarter's growth. However, that stability was briefly shaken in January by renewed tariff threats from Washington, later retracted.

"The growth is fragile, but it's real," said Klaus Weber, a senior economist at the Frankfurt Institute for Economic Research. "Consumers, finally feeling relief from the inflation spike with prices rising just 1.9% in December, are spending again. The services sector is holding up. The immediate crisis has passed, but the foundation is not solid."

The new threat comes from foreign exchange markets. The U.S. dollar has slumped to a 4.5-year low against the euro, which has appreciated 14.4% in the past 12 months and traded near $1.19 on Friday. A stronger euro makes European products more expensive in key markets like the United States, directly pressuring exporters who are only just beginning to recover.

Analysts link the dollar's weakness to market anxieties over Trump's trade policies and his public criticism of Federal Reserve Chair Jerome Powell, which is seen as undermining the central bank's credibility in fighting inflation and supporting the currency.

"The ECB is now walking a tightrope," noted Sofia Ricci, a strategist at a Milan-based investment bank. "With the exchange rate becoming a headwind for growth, pressure for an interest rate cut later this year will intensify, even as they remain focused on ensuring inflation is fully tamed." The European Central Bank meets this Thursday but is widely expected to hold rates steady.

Germany, the bloc's largest economy, posted its strongest quarterly growth in three years at 0.3%, a positive sign after two years of contraction. However, the government recently downgraded its 2026 growth forecast to 1% from 1.3%, acknowledging persistent structural challenges. These include high energy costs, a skilled labor shortage, intense competition from China in automotive and machinery sectors, and chronic underinvestment.

For the broader 27-member European Union, fourth-quarter growth was also 0.3%, with year-on-year growth at 1.4%.

Voices from the Market

Henrik Vogel, Berlin-based small business owner (Manufacturing): "A 0.3% growth figure is nothing to celebrate. It's stagnation dressed up as progress. My order books from the U.S. are already thinning because our prices in dollars are now absurd. Our politicians spent years warning about Trump's tariffs, only to be blindsided by the currency war he's unleashing. The ECB needs to act, not just 'monitor.'"

Elise Moreau, Financial Analyst, Paris: "The resilience is noteworthy. Consumers are back, and the worst-case tariff scenario was avoided. The dollar weakness is a concern, but it also reflects stronger relative confidence in Europe's monetary policy stability compared to the political uncertainty surrounding the Fed. This is a manageable headwind, not a hurricane."

Professor Anya Petrova, Economics Department, University of Amsterdam: "This data masks deep divergence. Germany's slight uptick is welcome but doesn't solve its industrial model crisis. Meanwhile, the weaker dollar will disproportionately hurt southern European exporters. The 'modest growth' narrative is a pan-European average that hides winners and losers, potentially fueling political friction within the bloc."