The Eurozone economy contracted on a quarter-on-quarter basis in the January-March period, possibly signaling the impact of headwinds posed by the Iran war, according to a final reading of gross domestic product from Eurostat on Friday.
First-quarter activity in the 21-member currency area fell by 0.2%, compared to a preliminary level showing expansion of 0.1% and fourth-quarter growth of 0.2%. Year-on-year, GDP rose by 0.3%, slowing from 1.2% in the final quarter of 2025 and an initial reading of 0.8%.
France, the second-largest European economy, contracted by 0.1%, offsetting a marginal uptick in growth in Germany, the region’s traditional powerhouse. Elsewhere, Ireland’s economy shrank by 12.1% quarter-on-quarter and 16.8% compared with the same quarter last year.
Employment, meanwhile, increased by 0.1%. In the fourth quarter of 2025, the figure rose by 0.2%.
As a key destination for energy products from the Gulf region, Europe has been exposed to supply constraints brought on by the more than three-month old conflict between joint U.S.-Israeli forces and Iran. Crucially, the fighting has left the Strait of Hormuz effectively shuttered to tanker traffic, while strikes on Gulf production facilities, especially in Qatar, have crimped critical liquefied natural gas flows.
Business activity in Europe has wilted against this backdrop, suggesting that the downward pressure on the Eurozone economy may have continued into the current quarter. Consumer price inflation in the Eurozone has also accelerated, bolstering the case for a potential European Central Bank interest rate hike at its June policy meeting.
Source: Investing