In April, euro area inflation held flat at a relatively high +2.2% YoY. This figure was an increase over expectations, which had forecast a drop down to 2.1%. Economists and policymakers have been watching this stability like hawks. It’s particularly remarkable because the region is under enormous pressure from outside forces driven by global economic trends. Core inflation, which strips out the more volatile energy and food prices, played a major role in this result. This pushed inflation up to 2.7% year-on-year, above the consensus forecast of 2.5%.
With inflation at this 3.7 percent level, the Fed can’t seem to make inflation go away. This is largely the result of stellar performance by core services, which experienced an impressive 0.50% monthly increase on a seasonally adjusted basis. This year posted the highest year-over-year increase in core services inflation. That’s a sign of resilience in some industries despite a more challenging overall environment.
Analysts are predicting a jump in core inflation this April. The announcement came just as the annual Easter holiday starts to bring a huge boost to consumer spending, further inflating this trend. With wage growth starting to lose steam, the outlook is for core inflation to fall over the next several quarters. Economic analysts are hoping the moderation in wage growth will be felt the most on inflationary pressures across the euro area. This moderation is key to the entire region’s economic health.
A stronger euro should play a larger role in this projected decrease in core inflation. Because the euro is appreciating against most other currencies, imported goods are getting less expensive, thus putting downward pressure on prices. At the same time, a slowdown in global growth due in no small measure to US trade policy has stoked fears over the economic outlook in the eurozone.
Uncertainty from evolving US trade policy—including the proposed imposition of tariffs on motor vehicles and parts—has further muddied the growth forecast for the euro area. The lack of visible impacts from these policy changes in growth data, particularly over the last quarter of 2024 and the first quarter of 2025. Still, economists largely remain on guard against possible backlashes. The trade war still leaves an uncertain picture for what this means for businesses and consumers in general.
Over the same time period, the euro area’s GDP increased by 0.4% quarter-on-quarter. This impressive growth was almost entirely due to stellar increase in Spain and Ireland. Germany, and even more so France, were looking at some weak growth numbers. First, it increases the risk of a destabilising overall economic slump in the eurozone.
Mixed overall economic indicators depict a less rosy scenario. Spain and Ireland show extraordinary resilience, a testament to the disparate economic fortunes at play in the euro area. These countries are not victimized but despite external adversity they continue to prosper. At the same time, larger economies such as Germany and France are pushing up against powerful headwinds.