Euro area GDP is now growing at about 0.2–0.3% from one quarter to the next. This growth is mainly due to strong domestic demand and services. Although manufacturing and industrial production are showing ups and downs, analysts think the GDP for the fourth quarter won’t be lowered, despite weak industrial production numbers in December.
The final Composite PMI data for January shows a slight slowdown in economic growth at the start of the year. It projects a steady GDP growth rate of around 0.2% for the first quarter. This aligns with the idea of a two-speed economy where domestic demand is crucial. Early data from countries in the euro area suggests a monthly industrial production decline of -2.3%, largely influenced by a -2% drop in Portugal.
Even with this significant monthly drop in industrial production, the quarterly rate should stay positive. However, there is a predicted negative carry-over effect of about -1.3% for the first quarter. Despite December’s weak industrial figures, it is unlikely that the euro area’s fourth-quarter GDP will be revised downward.
A year ago, in early 2025, forecasts indicated slow but steady growth around 0.2% each quarter. Recent data confirms this sluggish trend continues, with Eurostat’s flash estimate showing the economy grew by just 0.1% in the final quarter of 2025. This ongoing low-growth environment limits any potential upside, capping rallies for index futures like the Euro Stoxx 50.
The concept of a two-speed economy, which we closely monitored in 2025, has solidified. January 2026’s flash PMI data shows the services sector growing at a reading of 51.5, while manufacturing remains in decline at 48.2. This split creates opportunities for trades, such as investing in strong services companies and shorting those affected by industrial weakness.
Weakness in industrial production noted throughout 2025 seems to be carrying into this year. Data for December 2025 indicated another monthly decline of 1.5%, setting a poor foundation for the first quarter of 2026. Traders might consider buying puts on specific industrial stocks or sector ETFs, as this ongoing weakness is likely to impact their upcoming earnings.
Because resilient domestic demand is the main support against a recession, any negative consumer data could quickly change market sentiment. This delicate stability heightens the appeal of purchasing volatility, as the VSTOXX index may rise on signs of consumer troubles. Ongoing economic softness also raises expectations for an ECB rate cut, making interest rate futures an important focus in the coming weeks.
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