BusinessEurope Economic Outlook Autumn 2025 – EU economy shows resilience amid uncertainty but faces persistently low growth

Economic situation

• After a modest expansion of 0.9% in 2024, growth is projected to stabilise at approximately 1% in 2025 in line with the Spring edition of the Economic Outlook. A modest increase to 1.3% is forecast for 2026, representing a minor downward revision of 0.1 percentage points from the previous edition. The low expected growth for the current and following years reflects a complicated outlook faced by European businesses, with increasing trade tensions and uncertainty around tariffs, continued competitiveness issues, including high energy costs, insufficient delivery of regulatory simplification, and persistent labour and skills shortages. Frontloaded exports in the initial part of 2025, some stability provided by the EU–U.S. agreement reached in July, and the overall resilience of the EU economy helped avert more severe downside outcomes for the year, although a parallel BusinessEurope’s survey published in October 2025 displayed that three out of four companies and industry federations report a moderate to significant negative impact of tariffs on business activity.
• Investment expectations have been revised downwards, with growth projected to remain modest in an environment marked by persistent uncertainty. BusinessEurope’s Member Federations now anticipate that gross capital formation in the EU will grow by only 0.6% in 2025, a significant downward revision of 0.8 percentage points from the spring economic outlook, which projected a 1.4% increase. In 2026, however, investment growth is expected to rebound more strongly, reaching 2.2%, which is closer to the June 2025 forecast of 2.4%.
• Both inflation and unemployment are projected to continue their downward trend. Headline inflation is expected to average 2.1% in the EU in 2025, almost aligning with the ECB’s target, before easing further to 1.8% in 2026. Meanwhile, unemployment is forecast to remain at 4.8% in both 2025 and 2026, down from the previously projected 5.5% and 5.4%, respectively.

Policy recommendations

• The EU should continue to pursue efforts to revitalise its competitiveness by becoming a more attractive environment for companies to invest, grow, and innovate. Both the EU and Member States must act swiftly to implement measures and reforms that lower energy prices, reduce regulatory burdens, simplify administrative procedures, create a predictable legal framework, remove duplicate and overlapping obligations, and promote a simpler, and less distortive tax system. Barriers within the Single Market (which, according to the IMF, are estimated to be equivalent to tariffs of 44% for goods and 110% for services) should be removed to encourage investment and healthy competition between businesses across Member States, which would increase productivity and innovation. At the same time, skills and labour shortages need to be addressed through better matching of vacancies with skilled legal migrants, a modernised and more responsive tertiary education, and strengthened vocational training. The EU should also continue diversifying its trade partners by completing the ongoing trade negotiations to unlock new destination markets and sources of inputs.
• To close the EU’s investment gap, particularly in R&D, the green and digital transitions, and defence, the Savings and Investment Union must be taken forward. This would enhance cross-border competition among financial intermediaries, improving capital provision, lowering financing costs, and fostering innovation. Key to this is removing barriers to cross-border liquidity flows, including dividends, to boost bank-led investment and improve financing conditions for businesses. Member States should also mobilise household savings via simple, flexible retail investment products, and incentivise insurers and pension funds to increase allocations to long-term risk capital, including venture capital and private equity. In 2022, EU pension funds allocated just 0.02% of assets to venture capital, compared to nearly 2% in the US. Regulatory barriers remain a major obstacle: Basel IV must balance risk management with global competitiveness; level 2 and 3 acts by the European Supervisory Authorities should remain proportionate, including flexible default definitions; and ESG risk assessment requirements should be simplified to ease administrative burdens, especially for
  SMEs.