Europe's economy flatlines at 0.1% as US races 8 times faster

BRUSSELS (CN) — The U.S. economy expanded eight times faster than Europe’s in the second quarter of 2025, posting robust 0.8% growth while the eurozone managed just 0.1%, according to EU data released Friday that captures the widest performance gap between the economic superpowers in years.

The broader 27-nation EU’s 4.7-trillion-euro ($5.5 trillion) economy managed 0.2% growth, only marginally better than the eurozone’s 3.9 trillion ($4.5 trillion).

The shift marks a complete turnaround. Just three months earlier, Europe’s eurozone was outpacing the U.S. with 0.6% growth — while the latter economy actually shrank 0.1%. Now the tables have completely turned.

The annual scoreboard tells the same story: The U.S. expanded 2.1% compared to last year while Europe managed just 1.5% in the eurozone and 1.6% across the broader 27-bloc, according to Eurostat, the European Union’s statistics agency.

Germany, Europe’s economic engine, sputtered to a 0.3% contraction despite managing modest 0.2% annual growth. The decline dragged down the entire continent’s performance and raised alarm bells about Europe’s economic health.

But troubles run deeper than Germany. European exporters have been navigating months of trade chaos since the U.S. slapped 10% tariffs on most EU goods in April, with car duties hitting 25%. Even European Commission President Ursula von der Leyen’s July deal with President Trump — capping most tariffs at 15% — came too late to prevent the damage now showing up in official statistics.

The trade agreement itself faces mounting political resistance, with European Parliament lawmakers threatening to torpedo the deal they consider a “capitulation.” Trump’s August threats to impose “substantial additional tariffs” on countries with digital regulations have only deepened European skepticism about whether the agreement will deliver the promised stability.

The quarterly figures may actually understate Europe’s troubles, as monthly data shows the economy weakening further through June and July, suggesting the divergence with the U.S. could be widening even beyond the gap recorded in the second quarter.

Despite the steep decline, Denmark posted the strongest quarterly growth at 1.3%, followed by Croatia and Romania at 1.2% each. Among major economies, Spain showed resilience with solid 0.7% quarterly growth and France managed modest 0.3% expansion, but Italy also declined 0.1%, with Finland posting the steepest drop at 0.4%.

When measured against the same quarter last year, major European economies showed more resilience. Spain led with robust 2.8% annual growth, while France expanded 0.8% and Italy managed 0.4%. Even Germany posted modest 0.2% annual growth despite its quarterly contraction. The divergent timelines suggest Europe’s economic troubles are more recent, reflecting mounting pressures from high energy costs and global uncertainty rather than fundamental structural collapse.

Production and jobs take hit

The deterioration extends across Europe’s entire market economy, with overall production falling 0.4% in the eurozone and 0.2% in the EU during June, according to Eurostat’s Total Market Production Index released Friday. Despite the monthly decline, total market production remained 1.9% higher than June 2024 in the eurozone and 2.2% higher in the EU.

Industrial production led the decline, falling 1.0% across the EU, while construction output dropped 0.5%. Europe’s dominant services sector also showed weakness, contracting 0.1% in both the eurozone and EU after growing in May, though services production remained 2.9% higher than June 2024 in the eurozone and 3.3% higher in the EU.

The sectoral declines mirror the trade pressures facing European manufacturers. Traditional export powerhouses like chemicals and machinery — sectors heavily targeted by U.S. tariffs — saw their competitiveness eroded during the period of trade uncertainty, with manufacturers reporting reduced orders and delayed investment decisions as companies waited for policy clarity.

The economic slowdown is beginning to affect European job markets, with employment growth slowing to 0.1% in both the eurozone and EU, down from 0.2% growth in the first quarter. Annual employment growth also decelerated to 0.6% in the eurozone and 0.4% in the EU. About 219.9 million people were employed across the EU in the second quarter, with 171.6 million in the eurozone.

Despite the economic weakness, unemployment remained relatively low at 6.2% in the eurozone and 5.9% in the EU in July, according to data released Monday, though the employment growth deceleration suggests businesses are becoming more cautious about hiring.

The weakness extended into July as retail trade declined 0.5% in the eurozone and 0.4% in the EU, with Germany leading the decline at 1.5%. Food and beverage purchases dropped 1.1% across the zone — a sign that households are tightening spending on essentials.

Business investment also plunged, falling 1.8% in the eurozone and 1.7% in the EU after strong 2.7% growth in the first quarter, suggesting companies are pulling back on expansion plans amid economic uncertainty. Consumer spending managed only 0.1% growth in the eurozone and 0.3% in the EU, reflecting cautious household behavior.

Adding to Europe’s economic challenges, inflation rose to 2.1% in August despite the broader economic weakness, according to Eurostat data released Tuesday. The uptick creates a policy dilemma for European Central Bank officials, who face the difficult task of how to jump-start growth while keeping inflation and government spending in check. Meanwhile, the U.S. economy keeps charging ahead with fewer constraints, though the labor market shows signs of tightening amidst uncertainty.

The data reflects ongoing challenges facing European economies, including high energy costs following the Ukraine war, persistent inflation concerns and structural competitiveness issues that have made the continent less attractive for business investment compared to the United States.

Trump’s July deal may ease pressure on exporters, but economists warn the damage is done. Recovery will take time as businesses rebuild supply chains and restart shelved investments — with uncertainty mounting once more as lawmakers revolt and Trump threatens fresh digital tariffs.

Courthouse News correspondent Yuval Molina Obedman is based in Brussels, Belgium.