The Eurozone economy is undergoing a health check! GDP and inflation data to be released soon, the road to recovery still appears bumpy.

As policy makers at the European Central Bank meet to discuss interest rates, this week Europe will undergo a strict economic health check, which will help assess the impact of US tariffs on economic growth and inflation. The main event will be the release of the Eurozone's third quarter GDP initial estimate on Thursday. A few hours after this data is released, the ECB will announce the results of its two-day monetary policy meeting. Analysts expect the Eurozone to maintain a weak growth of 0.1% in the third quarter. Economic reports from some major economies in the region will provide more details. Equally important is the inflation data for October in the Eurozone, which is expected to drop from 2.2% in September to 2.1%. The ECB will also release the bank lending survey, which will help assess the smoothness of the transmission of monetary policy to the real economy. These latest data come after a turbulent first half of 2025. Market activity was initially active as businesses tried to take action before the implementation of US tariffs. However, a reversal was keenly felt, especially in Germany, where output shrank by 0.3% in the second quarter. The latest data will show how businesses and households are adapting to the trade agreement reached between the EU and the US in July, which set tariffs at 15% for most goods leaving the EU. Christian Keller, the chief economist at Barclays, said, "Despite a strong labor market, consumer confidence remains subdued, and the GDP data will reveal whether the private consumption recovery expected by the ECB has failed to materialize. Given weak domestic demand, external headwinds, and low capacity utilization in manufacturing, we also see risks that investment activity will only gradually recover." Economic stagnation may not necessarily alarm the European Central Bank. It is widely expected that the ECB will maintain the deposit facility rate at 2% this week. With inflation hovering around 2% and forecasts indicating a rebound in the economy gaining momentum by the end of the year, most officials are satisfied with keeping the deposit rate unchanged. According to a survey of analysts, the rates may remain at this level for the next two years. Hope was brought by the business survey released last Friday. With private sector activity unexpectedly reaching its highest level since May 2024, the recovery of the Eurozone economy is indeed within sight. Germany is the driving force, with the country set to invest billions of euros in infrastructure and defense, while politically unstable France is struggling. However, some remain skeptical. Ruben Segura-Cayuela, the head of European economic research at Bank of America, said, "We should be cautious about PMI data, as they have previously given false signals. But they are consistent with the still struggling manufacturing sector, and for Germany, they are in line with the dynamics of domestic demand that were supported early in the fourth quarter." German Chancellor Merkel is trying to revitalize the economy after two years of contraction, with the largest economy in Europe under scrutiny. Factory data was weak this summer. The German central bank has warned that output in the third quarter may be at best flat. Another three months of negative growth would put Germany into a recession. The Ifo Institute's monthly survey on Monday will indicate whether business confidence is further deteriorating due to concerns that the government has not implemented necessary reforms. France is also under scrutiny due to political divides and struggles to control its runaway budget deficit. Soeren Radde, head of European economic research at Point72, believes this remains a major risk to the Eurozone outlook. He said, "I expect Eurozone economic growth to accelerate in the fourth quarter, supported by strong PMI data in October. But if I had to consider a factor that could dampen sentiment in the fourth quarter, it would be France. Another risk is that I do not see a catalyst for real improvement in German industry before the fiscal stimulus measures take effect next year, and I think this will take some time." As for inflation, a slowdown will confirm the ECB's assertion that price growth is currently at target levels. Investors are looking for signs that inflation in the coming months may be weaker than expected, as the ECB has predicted inflation to temporarily fall below target next year. Any evidence that this situation is continuing or becoming more pronounced could reignite discussions about further interest rate cuts. Katharine Neiss, chief European economist at PGIM Fixed Income, said, "Inflation momentum is weakening, and the market believes the inflation risk is firmly tilted to the downside." She believes there is a risk that inflation may remain slightly below 2% in 2026.