Eurozone Grew 1.8% Annualized in Q2, Beat U.S. Growth of 1.5% Despite Iran War Fallout

The eurozone economy grew faster than the U.S. economy last quarter. That doesn't happen often.

GDP across the 21 countries that use the euro rose 0.4% in the second quarter through June, according to the European Union's statistics agency (Eurostat). That's 1.8% on an annualized basis. The U.S. economy, by comparison, grew at a 1.5% annual rate in the same quarter, according to Dow Jones reporting on the Commerce Department's data.

According to Dow Jones, the last time the eurozone outgrew the U.S. was the fourth quarter of 2025. This is a genuine reversal, not a rounding error.

The number also beat expectations. Economists polled by The Wall Street Journal had penciled in just 0.2% quarterly growth for the eurozone, according to Dow Jones. Getting 0.4% instead is double the forecast.

Why This Matters Given the Backdrop

This growth came while the U.S. and Israel were at war with Iran, a conflict that spiked energy prices and rattled global supply chains, according to Dow Jones reporting. Europe imports most of its energy. A Middle East war driving up oil and gas prices should hit European households and factories harder than most.

It didn't happen that way, at least not in the GDP numbers.

"The continued steady growth of the eurozone economy in 2Q shows that households and businesses have not pared back their spending much due to the Iran war," Andrew Kenningham, chief Europe economist at Capital Economics, told Dow Jones.

Bert Colijn, chief economist at ING, framed it similarly in a note for Seeking Alpha, writing that "the eurozone economy seems to have once again shrugged off a global economic shock quite well." Colijn cautioned that downside risks remain given the Middle East situation and other global uncertainty, but said a continued decent growth pace isn't an unreasonable bet for the coming quarters.

The Ireland Factor

A big chunk of that eurozone growth came from one country: Ireland.

Ireland's economy jumped 3.9% in the quarter, a sharp reversal from a 7% contraction in the first quarter, according to Dow Jones. Ireland hosts the European headquarters of major U.S. tech companies, and Dow Jones reported the jump was driven by the information and communications sector, with a boost from what officials are calling AI-related digital services activity.

European Central Bank President Christine Lagarde said last week that "digital services have been robust, in part owing to the increasing contribution from AI-related activity," according to Dow Jones.

Ireland's GDP is notoriously volatile because of how U.S. multinationals book profits and intellectual property there for tax reasons. Strip Ireland out, and Colijn's analysis for ING shows eurozone GDP growth would have been 0.3% for the quarter, only modestly stronger than the 0% growth in Q1. That's still growth, but it's not the same story as 0.4% with Ireland included.

The Bigger Countries Told a More Modest Story

Germany grew 0.2% in the quarter, down from an upwardly revised 0.4% in the first quarter, according to Dow Jones. France grew 0.2%, rebounding from a 0.1% contraction in Q1. Spain grew 0.7%, up from 0.6% in the prior quarter.

Dow Jones reported that some German industrial sectors are benefiting because Asian competitors got hit harder by the Middle East disruption, giving German exporters a relative edge even as their own growth stayed sluggish.

None of these bigger economies posted anything close to boom numbers. Germany and France barely grew at all. The overall eurozone beat is real, but it's concentrated and fragile.

The U.S. Side of the Ledger

The U.S. numbers released the same day weren't just about growth falling short. GDP growth of 1.5% missed economists' expectations, according to Dow Jones. The Fed's preferred inflation gauge, the PCE price index, cooled in June but remained well above the Fed's 2% target. Jobless claims rebounded to 197,000 for the week through July 25, up 9,000 from the prior week's upwardly revised 188,000, according to the Labor Department as reported by Dow Jones. Mortgage rates hit a one-year high of 6.66% on the 30-year loan, four straight weeks of increases.

Put together, that's a U.S. economy growing more slowly than expected, with inflation still hot and borrowing costs climbing. The eurozone, despite sitting closer to the actual war zone and its energy fallout, put up the stronger headline number.

What's Still Unresolved

Whether this eurozone strength holds is an open question that even the eurozone's own boosters aren't fully answering. Colijn's ING note explicitly flags "downside risks" from the Middle East conflict and other global uncertainty as still very much in play for the quarters ahead. The Ireland distortion means the next GDP report, when Ireland's multinational-driven volatility could swing the other way, will be the real test of whether continental Europe's underlying growth trend is 0.3%-ish and stable, or something weaker propped up by one country's corporate tax accounting.