Euro area – Cruising along

Danske Research Team Danske Bank A/S

The euro area economy has grown faster than expected despite geopolitical uncertainty, and the labour market remains resilient. We expect moderate growth to continue in both 2026 and 2027 driven by rising real incomes and investments. We see risks to the outlook as balanced.

Inflation has fallen below the 2% target and is expected to remain close to 2% in both 2026 and 2027. The recent rise in energy prices due to the war in Iran is expected to drive inflation above target in the near-term but declining wage growth will drive core inflation lower during the forecasting period. We consider the risks to the inflation outlook as tilted to the upside due to energy prices.

We expect the ECB to leave the policy rate unchanged at 2.00% in both 2026 and 2027, and thereby look through a temporary rise in inflation due to higher energy prices from the war in Iran as medium-term inflation expectations remain anchored. We view the risks to the outlook as balanced.

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Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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