Europe's top economies closed out a turbulent year on weak momentum, according to new data on Tuesday, which showed scant signs of an economic upswing even as the region managed to withstand the impact of U.S. President Donald Trump's trade barbs.
The 20-nation eurozone economy has held up better than feared, taking up some of the slack created as exports were hit by rising U.S. tariffs and solidifying bets that the European Central Bank (ECB) has finished cutting interest rates.
But resilience is not the same thing as good health. Growth remains barely above 1%, with household spending still cautious and high levels of government debt holding back spending.
That mixed bag was evident in the latest PMI data, which showed that business activity growth has slowed more than expected at the end of the year, as a contraction in manufacturing deepened, especially in Germany, while services growth slowed.
The preliminary print of the euro zone composite HCOB Purchasing Managers' Index (PMI) slowed to a three-month low of 51.9 in December, falling short of expectations as a major dip in German manufacturing offset an improvement in France.
"Overall, this reading still corresponds to decent GDP growth for the eurozone in the fourth quarter of 2025," ING economist Bert Colijn said of the business survey, which is compiled by S&P Global.
Nuancing this picture, the ZEW survey also out on Tuesday showed that German investor morale rose more than expected this month, while the eurozone's trade surplus edged down only marginally from the previous month to a still relatively high level in October.
In Britain, outside the European Union, businesses reported some renewed momentum, partly as uncertainty lifted over the government's fiscal plans that include 26 billion pounds (nearly $35 billion) in tax increases.
This momentum is unlikely to stop the Bank of England (BoE) from cutting rates by a further 25 basis points on Thursday, however, especially after separate data on Tuesday showed a slowing jobs market.
The European Central Bank's job is more clear-cut, especially since other indicators have painted a rather upbeat picture.
Economic growth turned out better than expected last quarter, the labor market remains tight, and hard data on industrial output was better than surveys suggest, all pointing to a modest upside in growth.
ECB President Christine Lagarde has already said that momentum is beating expectations, and new projections on Thursday will be upgraded.
Energy costs are also sharply down, improving the bloc's terms of trade, boosting overall economic growth and offering some relief to industry, a big importer of energy costs.
The news flow has been so sanguine that investors price out any chance of a further ECB rate cut in 2026 and most now bet that the next rate move will be a hike, even if that is still quite far away.
Increased German government spending was also supporting this narrative as economists expect defence and infrastructure investment to start showing up in hard data soon.
"We still believe the evidence points to a significant impact on growth even under conservative assumptions," Felix Huefner, an economist at UBS Investment Bank, said.
"We expect that this package will boost GDP growth by (around) 60 basis points in each 2026 and 2027," Huefner said. "Some tentative first signs of increased spending are already visible."
