Eurozone Sees Growth as German Industry Rebounds

The Eurozone is showing signs of stable, if modest, economic growth, navigating a turbulent period better than many expected. Recent data reveals a resilient consumer base and a recovering German industrial sector, though challenges in trade persist.

Despite shocks to global trade, the currency bloc's economy has demonstrated an ability to adapt. While this resilience has not yet sparked a full-blown boom, the latest figures suggest a foundation for modest expansion. According to Oxford Economics, the Eurozone economy remains "subdued," with inflation settling around a 2% "sweet spot." This balanced environment is likely to meet the objectives of the European Central Bank, which has already supported the economy with a series of rate cuts over the past two years and is not expected to pursue further action.

Consumer Spending Outpaces Expectations

Retail sales across the Eurozone climbed 0.2% in November, slightly ahead of the 0.1% forecast. The year-over-year growth was more impressive, hitting 2.3%—well above the 1.6% anticipated, thanks to a significant upward revision of October's data.

While Germany, the bloc's largest economy, saw slower-than-average growth in retail trade, other nations picked up the slack. Data from Eurostat indicates that Spain's retail sector continued its strong performance, and France also registered growth well above the trend.

German Industrial Sector Shows Signs of Life

Germany’s industrial data provided a notable bright spot. Industrial output expanded by 0.8% from the previous month, doubling analyst expectations. Even more striking was the 5.6% surge in industrial orders, a jump largely driven by several large-scale contracts.

This industrial rebound is expected to bolster confidence, which is already getting a lift from government plans to increase spending on defense and infrastructure.

"The stimulus is starting to work," noted Berenberg economist Holger Schmieding. He projects that increased government spending will directly contribute about 0.4 percentage points to GDP growth. Schmieding added that "a rebound in residential construction due to low interest rates, faster approval procedures and a worsening shortage of housing will add to that."

Economic growth is now projected to accelerate this year and finish 2026 on a strong note, supported by fiscal spending that is expected to have positive spillover effects across the Eurozone.

Weak Exports Remain a Major Hurdle

Despite the positive domestic signals, Germany's export engine continues to struggle. Exports, a cornerstone of German economic growth for decades, fell by 2.5% in November compared to the previous month. This decline contributed to a shrinking trade surplus, which dropped to 13.1 billion euros ($15.3 billion) from 17.2 billion euros a month earlier.

A key factor in this downturn was a sharp decline in sales to the United States. Compared with the same period a year earlier, German exports to the U.S. were down 22.9%, a direct consequence of tariffs imposed by Washington on most European goods.