Euro Area – Growth engine running on more cylinders

Danske Research Team Danske Bank A/S

The euro area economy has grown faster than expected this year despite tariff uncertainty, and the labour market remains resilient. We expect the decent 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 returned to the 2% target and is expected to fall below target in both 2026 and 2027. Declining wage growth and the strengthening of the euro is expected to also drive core inflation below target. We consider the risks to the inflation outlook as balanced.

We expect the ECB to keep the policy rate unchanged at 2.0% in both 2026 and 2027. While inflation is expected to undershoot the 2% target the decent growth outlook, tight labour market, and anchored long-term inflation expectations should keep the ECB from lowering rates further.

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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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