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Recent European financial quarterly analysis reflects major trends in a slowdown process as part of the early frontloading of international trade ahead of existing and expected tariff hikes, and the subsequent unwinding of numerous global challenges. By the end of 2025, the ECB expects that global and the EU growth will be restrained by higher tariffs, stronger euro and intensifying global competition; these headwinds, however, are likely to ease next year, notes the analysis.
Background
Most experts have signaled “hovering inflation near target” in the area of services’ inflation dynamics, easing wage growth and fading prior energy supplies. On risks, they see a roughly balanced combination of “mild upward tilt”: e.g. in fiscal policy, trade frictions, energy, etc., which are offset by a stronger euro, softer global demand and cooling labour markets; global growth would by slightly over three percent.
The ECB is committed to ensuring that the euro system fully takes into account, in line with the EU’s goals and objectives, the implications of climate change and nature degradation for monetary policy and central banking.
Besides, recent studies reviewed new perceptions of an imminent decline of the international role of the US dollar and implications for the euro by considering developments in international reserves, invoicing, debt and payment systems. Strengths and weaknesses of the US and euro area economies are also discussed along with new policy initiatives and proposals.
The ECB analytical study suggests that a quick decline of the US dollar or a shift towards a multipolar currency system with similarly important reserve currencies is highly unlikely. For the foreseeable future, the euro’s role is likely to remain one of primarily regional importance.
The study was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President thus October.
Main source: https://www.europarl.europa.eu/thinktank/en/document/ECTI_BRI(2025)764367
Medium-term inflation
The following trends are visualized in the ECB study:
= ECB keeps policy rates unchanged for the second consecutive time,
= ECB reaffirms its symmetric medium-term inflation target of 2 percent,
= Monetary Policy Expert Panel overall deems current policy stance as adequate,
= In addition, more than half of the experts believe that achieving the status of global reserve currency is desirable for the euro, and
= The FED cuts rates for the first time since December 2024.
In its most recent Governing Council meeting in September 2025, the ECB unanimously decided to keep the three key interest rates unchanged for the second consecutive time, as the deposit facility rate (DFR) currently stands at 2.0%.
Besides, the ECB made it clear that headline inflation is currently at around the 2% medium-term target and the assessment of the inflation outlook is broadly unchanged.
To determine the appropriate monetary policy stance, the ECB reiterated that it would continue to follow a data-dependent and meeting-by-meeting approach.
Source and citation from: https://www.europarl.europa.eu/RegData/etudes/IDAN/2025/773715/ECTI_IDA(2025)773715_EN.pdf
ECB-2025 strategy review: key findings
At the end of June 2025, the ECB concluded its second strategy review in four years, reaffirming its symmetric medium-term inflation target while introducing important adjustments to its analytical framework, operational tools and communication practices.
These changes reflect the ECB’s determination to adapt to a more volatile economic landscape shaped by supply-side shocks, geopolitical fragmentation, climate risks, demographic change and the growing influence of artificial intelligence on labour markets and productivity sectors.
The revised strategy introduces several key updates:
= a stronger commitment to respond decisively and persistently to major deviations from the inflation target;
= the maintenance of a broad and flexible policy toolkit, guided by a clearer assessment of proportionality;
= refinements to the ECB’s integrated analytical framework, placing greater weight on uncertainty and structural shifts;
= gradual inclusion of the “owner-occupied housing” costs; and
= enhanced communication strategy, designed to engage both expert audiences and the wider public more effectively.
More in the ECB monetary policy strategy statement-2025 at:
https://www.ecb.europa.eu/mopo/strategy/strategy-review/ecb.strategyreview202506_strategy_statement.en.html
Economic Outlook Quarterly: final year of implementation
Implementation of the EU-financed national recovery plans (NRPs) in the member states is advancing at varying speeds across the states: to address possible challenges, the Commission has launched a program to streamline and simplify the NRPs in consultations with the states.
For example, recently agreed EU-US trade deal forms an integral part of a diverging external balances, even if several key elements of the deal remain unclear and may affect future trends, such as: the EU maintains a goods surplus with the US, largely offset by energy and services deficits, while its trade deficit with China has widened sharply amid rising imports and weakening exports.
The latest data show that significant resources have been backloaded to the final year of implementation, for various reasons, including: the fact that many of the measures financed under the Recovery and Resilience Facility (RRF) may take several years to complete, due to their design; multiple revisions of the national recovery and resilience plans (NRRPs); and implementation delays. These patterns pose a challenge to the full absorption of RRF resources by the end of 2026.
The ongoing experience with the Next Generation EU program and the RRF has influenced the design of the proposal for the next EU multiannual budget (expected to reach €2 trillion for the 2028-2034 period) that the Commission put forward in July 2025.
In September 2025, while assessing progress on the recommendations on the European competitiveness, the EU experts (including Mario Draghi) drew attention to huge strategic investment needs, estimated by the European Central Bank at almost €1.2 trillion per year up to 2031.
They argued that common debt for common projects would allow the EU to finance larger projects in areas that lift productivity, such as breakthrough innovation, scale technologies, defence, R&D and energy grids, where fragmented national spending can no longer deliver.
Beyond the annual rates, cumulative growth since the pre-pandemic period reveals substantial divergence across the EU member states.
While output in the EU has expanded by 6.5 % since 2019 and by 6.0 % in the euro area, individual countries’ performances vary widely: at the lower end, Germany (+0.1 %) and Finland (+0.2 %) have registered almost no economic growth, while Estonia (+1.2 %) has also lagged behind.
By contrast, several smaller EU economies have seen remarkable expansions: e.g. Croatia (+22.8 %), Cyprus (+24.0 %) and Malta (+33.7 %), with Ireland recording by far the strongest increase at nearly +49 %, partly due to the significant presence of pharmaceutical companies in Ireland and exports therefrom.
Note. All citations and references to the EU quarterly economic outlook in: https://www.europarl.europa.eu/thinktank/en/document/EPRS_BRI(2025)775912