Eurozone: Domestic demand to drive growth in 2026

Growth in the Eurozone is expected to strengthen in 2026 (1.6%) primarily driven by investment and a resurgence in activity in Germany. Our forecasts indicate that inflation is likely to remain below the 2% target. However, the anticipated recovery in GDP growth may prompt the ECB to keep its rates unchanged until 2027 before raising them. The fiscal impulse is expected to remain largely neutral, as fiscal consolidation in France and Italy offsets the increase in the German deficit. Interest rates on new loans to households and businesses are projected to remain stable in 2026, with new loans continuing to decelerate for both households and businesses. However, sovereign rates are expected to rise moderately.

Growth: new momentum from the core

Following a lacklustre performance in 2024 (0.8%), growth in the Eurozone is projected to accelerate to 1.5% in 2025, and 1.6% both in 2026 and 2027. GDP growth is expected to stabilise after erratic fluctuations in 2025 due to US tariffs. It is also likely to be less dependent on extraordinary factors, such as Ireland's exceptional performance in 2025, while the major countries (Germany, Italy, and, to a lesser extent, France) have underperformed. In 2026, growth in the Eurozone is projected to be driven by its largest economies and mainly fuelled by investment. This investment will be both public, bolstered by the German infrastructure fund and European rearmament efforts, and private, driven by the boom in AI and digital infrastructure.

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