The relationship between environmental performance and economic growth has become a central topic in contemporary research, as countries seek sustainable growth policies and improvements in environmental quality. This relationship is generally influenced by long-term factors such as technological innovations and environmental investments, which enhance economic productivity over time. Consequently, the link between economic growth and environmental performance is nonlinear and varies according to each country’s institutional structure and environmental policies. In this study, the effect of the Environmental Performance Index (EPI) on economic growth was analyzed using spatial data for 31 European countries in 2022. In addition to the EPI score, control variables including foreign direct investment, trade openness, and population were incorporated. To account for spatial dependencies, a spatial weight matrix was constructed considering the four nearest neighbors. Moran’s I test confirmed the presence of spatial effects, indicating that economic conditions in neighboring countries influence each other. Lagrange Multiplier (LM) tests were then applied to select the most appropriate spatial model, with the Spatial Error Model (SEM) identified as the best fit. SEM results reveal that population growth positively affects economic growth, while trade openness and investment are not statistically significant. The EPI score is statistically significant and exhibits a negative impact, suggesting that environmental expenditures may impose short-term costs on economic growth. However, over the long term, well-designed and sustainable environmental policies may reverse this effect positively. These findings imply that policymakers should consider the spatial interactions between countries when designing environmental policies. Specifically, strategies should promote environmental quality without constraining economic growth, while accounting for the influence of neighboring countries’ environmental actions.