Europe sees modest growth, but the weaker dollar looms as a threat
[January 30, 2026] By
DAVID McHUGH
FRANKFURT, Germany (AP) — The European economy recorded modest growth at
the end of last year, pushing past turmoil over higher U.S. tariffs. But
now the economy faces another hurdle: a stronger euro against the dollar
that could weigh on exports.
Growth in the 21 countries that use the shared euro currency came in at
0.3% for the last three months of 2025, matching the figure from the
third quarter, the EU statistics agency Eurostat reported Friday. Growth
compared with the fourth quarter of 2024 was 1.3%.
Moderate growth has defied recession fears from earlier in the year,
when US President Donald Trump threatened to raise tariffs to levels
that could have devastated trade. Talks settled on a 15% cap on U.S.
tariffs, or import taxes, on goods from the European Union. The higher
tax isn’t great for business — but the certainty resulting from the deal
let companies at least go ahead and plan.
That assurance was dented after the quarter ended when Trump on Jan. 17
threatened EU member countries with higher tariffs for supporting
Greenland against his calls for a U.S. takeover. Trump later withdrew
the threat.
European services businesses — a broad category ranging from
hairdressers to medical treatment — have shown moderate growth according
to the S&P Global survey of purchasing managers. Exports have tanked and
the industry continues to lag but showed improvement toward the end of
2025. Lower inflation of 1.9% in December — after a painful spike in
2022-2023 — and rising wages have left consumers with more purchasing
power and willingness to spend.
The latest threat is the dollar’s steep fall against the euro. It is at
its weakest for 4 1/2 years, which makes European exports less
competitive on price in a key foreign market.
The dollar has weakened due to fears that Trump’s tariffs will slow
growth and that his attacks on U.S. Federal Reserve Chair Jerome Powell
will undermine the U.S. central bank’s role as an inflation fighter and
protector of the dollar’s worth. The euro has risen 14.4% against the
dollar in the past 12 months and traded at $1.19 on Friday.
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Containers are piled up in Frankfurt, Germany, Friday, Jan. 30,
2026. (AP Photo/Michael Probst)
 Analysts are saying that if the
dollar’s weakness against the euro continues, the European Central
Bank may cut interest rates later this year to stimulate growth. The
ECB holds a rate-setting meeting on Thursday but is not expected to
change rates then.
Germany showed improved growth at 0.3% in the
quarter, its best quarterly performance in three years, but still
faces serious short- and long-term headwinds. The eurozone’s largest
economy is still waiting for infrastructure and defense spending set
in motion by Chancellor Friedrich Merz to show its effects through
increased growth. Germany grew 0.2% last year, its first year of
growth after two years of declining output. The government on
Wednesday cut its growth outlook for this year to 1% from 1.3%
previously.
Germany has struggled with a raft of troubles: higher energy prices
after the loss of Russian natural gas due to the war against
Ukraine, a shortage of skilled labor, increasing Chinese competition
in key export sectors such as autos and industrial machinery, years
of underinvestment in growth-promoting infrastructure, and too much
red tape.
Growth for the broader 27-country European Union also came in at
0.3% for the fourth quarter of 2025 and 1.4% compared with the
year-earlier quarter. Not all EU members have moved to join the
euro, which gained its 21st member in January when Bulgaria joined.
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