Five good reasons to be positive about Europe in 2026 (and beyond)

Europe is getting better and better. It has not been spared shocks, notably the war in Ukraine – its impact on energy prices is largely responsible for German stagnation – and political uncertainty in France, which affected French GDP growth in 2025. But Europe is overcoming these difficulties. GDP Growth in the Eurozone proved robust, at 1.5%, and 2026 should be a positive year, even more than in 2025. Industry has emerged from recession, buoyed by defence, aeronautics and AI, while households are showing purchasing intentions not seen since February 2022. All these factors will help Europe to continue building its strategic autonomy. The context is favourable and Europe is becoming increasingly credible in the eyes of investors.

Germany finally back on track

Germany is expected to return to more robust growth in 2026 for the first time in four years (after a return to moderately positive territory in 2025 at +0.3%). The blow dealt by soaring energy prices following the outbreak of war in Ukraine in February 2022 was severe.

Furthermore, following the announcement in March 2025 of two massive investment plans in defence and rail infrastructure, doubts about their implementation have been mounting. Infrastructure spending is unlikely to have increased in 2025 due to delays in implementation, but the spending has already been approved for 2026, which should enable a ramp-up. This is reflected in public spending and, as a positive sign, in industrial production of capital goods since the fourth quarter of 2025. The recovery is spreading, with ten out of twenty-two industrial sectors rebounding or expanding, according to the IFO survey. This is a proportion not seen since January 2022.

Germany's potential growth should rebound. Indeed, Germany has set out to make up for the investment backlog that has weighed on its potential growth for years. And it is doing so with low-capacity utilization rate (reflecting market share losses in industry), which can now be redirected. This translates into an available workforce, as evidenced by the unemployment rate (which, while not high, rose from a low of 3% to 3.8% in November 2025).

The increase in investment is also made possible by limited debt, whose impact on interest rates remains relative and manageable. Thus, the interest burden would have remained close to 1% of GDP in 2025 and should remain contained at 1.7% of GDP at the end of the decade, according to our forecasts. Given its favourable starting point (moderate fiscal deficits), the country is not suffering from financial constraints. It does not need to make immediate savings in order to increase spending where it wishes.

Germany's return to the forefront is accompanied by a desire to source more from the domestic market, at least in Europe, and therefore slightly less from the United States (which, until now, accounted for nearly half of Germany's military investment expenditure).

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