Macroeconomic overview

Europe entered 2026 with positive momentum, having proved resilient through uncertainty and trade policy shocks in 2025.

However, the outlook has weakened again as conflict in the Middle East has disrupted key shipping routes, including the Strait of Hormuz, pushing up oil and gas prices leading to energy market volatility.

Higher energy costs are expected to reduce growth and lift inflation across Europe. The scale of the impact will depend on how long the conflict lasts, how far it spreads, and how sustained the price shocks become. Even so, domestic demand remains an important stabiliser. Private consumption, public sector investment, employment and wage growth should help keep growth positive, although moderate.

While the World Bank has raised inflation forecasts for the region in 2026 due to the ongoing conflict, the European Central Bank increased interest rates from 2% to 2.25% in June 2026 for the first time in almost three years, as inflation reached 3.2% in May 2026, driven by higher energy costs. Higher borrowing costs are expected to slow construction activity, particularly in residential and commercial sectors, as rising debt costs reduce project viability and increase the risk of delays.1

Trade policy remains another risk. While several economies benefited from early export activity linked to tariff changes, these effects are temporary. At the same time, several EU-level initiatives are expected to support investment and reform in 2026. The Recovery and Resilience Facility is nearing completion, with remaining funds expected to lift investment activity. The Competitiveness Compass, the EU’s flagship framework for structural reform, is also progressing. Planned measures on innovation, digital networks, quantum technologies and AI factories should help strengthen productivity, improve access to advanced computing infrastructure, and support Europe’s global competitiveness.2

GDP growth and inflation

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Belgium Denmark Finland France Germany Ireland Israel Italy Netherlands Norway Spain Sweden UK

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Real GDP

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Inflation rate

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Sources

European Central Bank, “Monetary policy decisions,” 11th June 2026
Eurozone economic outlook. Deloitte Insights, April 2026

Disclaimer

This macroeconomic chapter is based primarily on the estimates and projections published in the April 2026 World Economic Outlook. These projections reflect statistical information available to the International Monetary Fund up to 1st April 2026 and may not capture the latest published data in all cases. The IMF assumes that the conflict in the Middle East will remain limited in duration, intensity, and geographic scope, with related disruptions easing by mid-2026. If the conflict persists, escalates or causes more severe disruption to energy markets, trade routes or financial conditions, the growth and inflation outlook could differ materially from the projections presented in this chapter. The forecasts should be read in the context of the assumptions used in the reference scenario. The analysis also draws on the latest available reports from national central banks and other official institutions, accessed up to the end of April 2026.

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