DAILY NEWS
Brussels, 17 November 2025
Autumn 2025 Economic Forecast shows continued growth despite challenging environment
The European Commission's Autumn 2025 Economic Forecast shows that growth in the first three quarters of 2025 outperformed expectations. While the strong performance was initially driven by a surge in exports in anticipation of tariff increases, the EU economy continued to grow in the third quarter. Looking ahead, economic activity is expected to continue expanding at a moderate pace over the forecast horizon, despite a challenging external environment.
This year's Autumn Forecast projects real GDP to grow by 1.4% in the EU in 2025 and 2026, edging up to 1.5% in 2027. The euro area is expected to mirror this trend, with real GDP projected to grow by 1.3% in 2025, 1.2% in 2026, and 1.4% in 2027. Inflation in the euro area is forecast to continue its decline, falling to 2.1% in 2025, and to hover around 2% over the forecast horizon. In the EU, inflation is set to remain marginally higher, falling to 2.2% in 2027.
Private consumption and investment drive growth
Latest business indicators and survey data point to sustained positive momentum in the coming quarters. Looking further ahead, the global environment remains challenging, but a resilient labour market, improving purchasing power and favourable financing conditions are set to support moderate economic growth.
In addition, the Recovery and Resilience Facility and other EU funds are cushioning the effect of fiscal consolidation in several Member States. This support underpins domestic demand, which is set to be the main driver of growth over the forecast horizon. Private consumption is expected to grow steadily, supported by the above factors, but also by a gradual decline in the saving rate. Investment is set to regain momentum, mainly driven by non-residential construction and capital spending on equipment.
The EU's highly open economy remains susceptible to ongoing trade restrictions, but the trade deals reached between the US and its trading partners, including the EU, have alleviated some of the uncertainties that overshadowed the Spring Forecast.
The forecast assumes that all country- and sector-specific tariffs implemented by the US administration at the cut-off date of 31 October will be in place throughout the forecast horizon. Globally, trade barriers have reached historic highs, and the EU now faces higher average tariffs on exports to the US than assumed in the Spring 2025 Forecast. Nevertheless, tariffs on EU exports remain lower than those applied to several other major global players. This represents a modest relative advantage for the EU economy, albeit in a context of weak global goods trade and a strong euro tempering foreign demand.
Inflation projected to stabilise
Inflation in the euro area has been revised slightly up from the Spring Forecast. It is now expected to come down from 2.4% in 2024 to reach the ECB's target of 2% in 2027. Trends vary across components, with decreases in services and food inflation counterbalanced by rising energy inflation. Intensifying competitive pressures from imports and the appreciation of the euro should restrain inflation in non-energy goods. Headline inflation in the EU is projected to be marginally higher than the euro area, gradually declining from 2.6% in 2024 to 2.2% in 2027. This forecast assumes that the new EU Emissions Trading System (ETS2) will enter into force in 2027, as has been legislated.
Unemployment rates decline further
The gradual slowdown of employment growth that started in 2022 continued in the first half of 2025. Still, the EU economy generated 380,000 jobs during that period. Employment is set to continue expanding moderately—by 0.5% in 2025 and 2026—before decelerating to 0.4% in 2027. The unemployment rate is anticipated to edge down further from 5.9% in 2025 and 2026 to 5.8% in 2027. Wage growth in the EU is set to slow but remain above inflation, modestly improving household purchasing power.
Government deficits to edge up
The EU general government deficit is expected to increase from 3.1% of GDP in 2024 to 3.4% by 2027, partly due to the increase in defence spending from 1.5% of GDP in 2024 to 2% in 2027, measured according to the Classification of the Functions of Government (COFOG).
The EU debt-to-GDP ratio is projected to rise from 84.5% in 2024 to 85% in 2027, with the euro area ratio set to rise from around 88% to 90.4%. This reflects ongoing primary deficits and the fact that the average cost of public debt is higher than nominal GDP growth. By 2027, four Member States are expected to have debt ratios above 100% of GDP.
Challenging global environment continues to weigh on the outlook
Looking forward, risks to the growth outlook are tilted downwards.
Persistent trade policy uncertainty continues to weigh on economic activity, with tariffs and non-tariff restrictions potentially constraining EU growth more than expected.
Any further escalation of geopolitical tensions could intensify supply shocks. At the same time, repricing of risks in equity markets, especially in the US technology sector, could impact investor confidence and financing conditions. Domestic political uncertainty might also weigh on confidence. Finally, the increasing frequency of climate-related disasters could undermine growth.
On the upside, resolute progress on reforms and the competitiveness agenda, higher defence spending focused on EU production, and new trade agreements could bolster economic activity more than projected.
Background
This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices, with a cut-off date of 27 October. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until, and including, 31 October. Unless new policies are announced and specified in adequate detail, the projections assume no policy changes.
The European Commission publishes two comprehensive forecasts (spring and autumn) each year, covering a broad range of economic indicators for all EU Member States, candidate countries, EFTA countries and other major advanced and emerging market economies.
The European Commission's Spring 2026 Economic Forecast will update the projections in this publication and is expected to be presented in May 2026.
For More Information
Full document: Autumn 2025 European Economic Forecast
Follow Commissioner Dombrovskis on X: @VDombrovskis
Follow DG ECFIN on X: @ecfin
The chapter on Cyprus:
Economic forecast for Cyprus
The latest macroeconomic forecast for Cyprus.
Cyprus’s economic growth remains robust, driven primarily by domestic demand. Household consumption is expected to gradually ease as real wage growth slows, but investment is set to be stronger, supported by the completion of RRF projects in 2026. Services exports are also set to remain strong. Headline inflation has been decreasing throughout 2025 and is projected to approach 2% by the end of the forecast horizon, whereas headline inflation excluding energy and food will remain slightly higher. Government fiscal surpluses are projected to hold up and the debt-to-GDP ratio is set to continue its downward trend and move below 50% of GDP in 2027.
Indicators
2025
2026
2027
GDP growth (%, yoy)
3.4
2.6
2.4
Inflation (%, yoy)
0.9
1.5
1.9
Unemployment (%)
4.7
4.5
4.3
General government balance (% of GDP)
3.3
3.0
3.2
Gross public debt (% of GDP)
56.4
51.0
45.7
Current account balance (% of GDP)
-7.7
-7.4
-6.9
Growth remains sustained
Real GDP expanded by 3.2% in the first half of the year, driven by robust aggregate consumption (up 6.2% y-o-y) and accelerating investment (up 18.4% y-o-y). Net exports also had a positive impact on growth due to strong ICT trade and record-breaking tourist arrivals early in the season.
The economic momentum is set to remain strong over the second half of 2025, leading to GDP growth of 3.4% for the entire year. The GDP growth rate is projected to moderate to 2.6% in 2026 and 2.4% in 2027. Private consumption is expected to remain the main driver of growth, though its momentum is set to ease as real income growth moderates, and the inflow of foreign workers whose relocation typically supports household spending, slows. This moderation is expected to be partially offset by stronger investment, supported by the timely implementation of the RRF by 2026, and sustained inflows of inward FDI, especially in real estate activities. Exports are also set to remain strong throughout the forecast horizon thanks to a solid tourist outlook and buoyant ICT activity. However, the global trade slowdown is having a negative impact on the outlook for the shipping sector, particularly in 2026. Despite a sizeable trade surplus driven by services, the current account remains in deficit due to profit repatriation by the large number of foreign-owned corporates. The current account deficit is projected to narrow only gradually by 2027.
Inflation to stay slightly below 2% in the medium term
Headline inflation decreased sharply over the course of 2025, driven mainly by lower energy prices and, to a lesser extent, by moderating food prices. This decrease reflects the impact that a temporary VAT reduction had on energy bills. Headline inflation is projected to fall to 0.9% in 2025, before gradually rising to 1.9% by 2027, as the impact of the VAT reduction fades and the introduction of ETS2 in 2027, if not delayed, is going to lift energy inflation. Headline inflation excluding energy and food is set to remain slightly higher due to persistent service price pressures linked to strong tourism demand.
Record-low unemployment
Labour market conditions are set to remain strong, in line with the growth outlook. Job creation levels are solid, with employment expanding by 1.6% y-o-y in the first half of 2025. Unemployment fell to a record low of 4.3% over the same period. Employment growth has been supported by significant inflows of foreign workers. However, these inflows are expected to gradually moderate as the initial wave of corporate relocations under the so-called ‘headquartering policies’, designed to attract international companies to Cyprus, is coming to an end.
Public finances remain in good shape
In 2024, Cyprus achieved a sizeable surplus in its general government headline of 4.1% of GDP, with revenue growing more strongly than expenditure. In 2025, the government surplus is projected to remain solid, slightly decreasing to 3.3% of GDP.
Favourable economic growth and labour market conditions continue to support strong revenue growth. This is despite higher spending on support measures and compensation payments following the wildfires in July 2025, as well as VAT reductions for energy and other basic goods. With the RRF entering its final phase, public investment is projected to benefit from a noticeable boost in 2025 and 2026.
In 2026 and 2027, public finances are forecast to remain favourable, and the government headline surplus is projected to hold up, at 3.0% and 3.2% of GDP respectively. The end of the RRF in 2026 is expected to have a dampening effect on government revenue and expenditure in 2027.
The government debt-to-GDP ratio dropped by more than 8 pps. to 62.8% at the end of 2024. This trend is projected to continue with the debt level projected to fall to 56.4% of GDP by the end of 2025. Government debt is projected to further decrease to 51.0% of GDP in 2026 and 45.7% of GDP in 2027.
European Economic Forecast. Autumn 2025 - Cyprus
Quote(s)
Even in an adverse environment, the EU’s economy has continued to grow. Now, given the challenging external context, the EU must take resolute action to unlock domestic growth. This means accelerating our work on the competitiveness agenda—including by simplifying regulation, completing the Single Market, and boosting innovation.
Valdis Dombrovskis, Commissioner for Economy and Productivity; Implementation and Simplification
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Economy, finance and the euro
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