Eurozone economy unexpectedly contracts 0.2% in first quarter

The euro area economy contracted in the first quarter of 2026, while employment continued to rise slightly, Eurostat said Friday.

The gross domestic product (GDP) fell 0.2% in the euro area and 0.1% in the EU in the January-March period compared with the previous quarter, defying a previous 0.1% growth estimate.

In the fourth quarter of 2025, GDP had increased 0.2% in both the euro area and the EU.

On an annual basis, GDP rose 0.3% in the euro area and 0.7% in the EU in the first quarter, slowing from 1.2% and 1.4%, respectively, in the previous quarter.

Among EU member states, Denmark posted the strongest quarterly GDP growth at 1.9%, followed by Estonia and Malta, both at 1.1%.

The steepest decline was recorded in Ireland, where GDP plunged 12.1%. Lithuania, Sweden, and France also posted quarterly contractions of 0.3%, 0.2%, and 0.1%, respectively.

Net trade weighs on growth

Eurostat said domestic demand made a limited positive contribution to growth, with household final consumption and government final consumption each adding 0.1 percentage points in both the euro area and the EU.

However, gross fixed capital formation subtracted 0.1 percentage points from growth in both areas.

Changes in inventories also had a negative impact of 0.1 percentage points in the euro area, while the effect was negligible in the EU.

Exports minus imports weighed more heavily on growth, subtracting 0.3 percentage points in the euro area and 0.2 percentage points in the EU.

Employment still grows in eurozone

Despite the output decline, employment increased 0.1% in the euro area in the first quarter compared with the previous quarter, while it remained stable in the EU.

In the fourth quarter of 2025, employment had risen 0.2% in both areas.

Eurostat estimated that 221.2 million people were employed in the EU in the first quarter, including 176.3 million in the euro area.

Compared with the same quarter of last year, employment increased 0.5% in both the euro area and the EU, easing from annual growth of 0.7% and 0.6%, respectively, in the previous quarter.