Macroeconomic overview
Sections: GDP growth Inflation
GDP growth
The IMF’s latest forecasts present a mixed economic outlook for European countries over 2025 and into 2026, with notable changes compared to the earlier April projections.
The direction of these revisions varies between countries, however moderate growth is expected across the region. Ireland, for example, has received a substantial upward adjustment to its growth forecast for 2025, whereas Denmark, France, Norway, and Finland have received downward adjustments due to weaker exports and domestic challenges. These updated projections reflect evolving global trade dynamics, changes in fiscal policy, and sector-specific trends. Overall, the outlook is characterised by cautious optimism, with growth prospects in many countries adjusted in response to recent economic developments.
Belgium
The IMF projected in October that Belgium’s GDP will have grown by 1.1% in 2025, a slight improvement on the April forecast, driven by modest gains in construction-led investment that partially offset weaker spending on equipment. US tariffs are expected to weigh on exports, except for pharmaceuticals. Growth is projected at 1% in 2026, supported by somewhat improved external conditions and moderate investment.¹ ²
Denmark
In October, the IMF projected that Denmark’s real GDP will have grown by 1.8% in 2025, revised down from the April projection of 2.9%. Nevertheless, growth in 2025 will have been supported by robust pharmaceutical and industrial exports, as well as the early-year reopening of North Sea gas extraction. GDP growth is projected to accelerate to 2.2% in 2026, driven by higher private and public spending, and increased investment, encouraged by lower interest rates.³
Finland
The IMF projected in October that Finland’s real GDP growth would be 0.5% in 2025, a downward revision from the earlier April forecast. The modest gains compared with 2024 levels are mainly attributed to strong export growth early in the year and a rebound in investment, especially in the second quarter. However, a decline in private consumption and a downturn in exports later in the period offset these positive contributions, resulting in subdued overall growth. Growth is projected to strengthen to 1.3% in 2026, supported by improved financing conditions and reduced uncertainty.⁴ ⁵
France
The IMF projected in October that France’s real GDP growth would be 0.7% in 2025, slightly up from the April projection, with net exports expected to weigh on growth, alongside the effects of tight fiscal policy and weak private investment. In 2026, growth is expected to pick up to 0.9%, driven by lower borrowing costs, a slightly more supportive fiscal stance, rising real incomes fuelling consumption, and a recovery in investment, particularly in the defence sector.⁶
Germany
The IMF projected in October that Germany’s real GDP growth would be 0.2% in 2025, representing flat growth. This was supported by early US export shipments ahead of anticipated tariffs, as well as by private consumption and investment. Initial fiscal measures introduced by the new government provide additional support. Growth is projected to rise to 0.9% in 2026, driven by greater government stimulus through increased infrastructure and defence spending, tax reductions, lower energy and network charges, and enhanced commuter incentives.⁷ ⁸
Ireland
In October, Ireland’s economy was projected to grow by 9.1% in 2025, a significant upward revision from the IMF's April forecast of 2.3%, before slowing to 1.3% in 2026. Much of the surge in 2025 is driven by export gains, particularly in the pharmaceutical sector, and partly by early or front-loaded shipments. However, global trade headwinds and rising uncertainty could weigh on growth, while Ireland’s close economic ties to the US add further vulnerability amid increasing trade tensions.⁹ ¹⁰
Israel
The IMF projected that Israel’s real GDP growth would be 2.5% in 2025 as part of it's October update, marking a downward revision from the April forecast of 3.2%, before accelerating to 3.9% in 2026. This growth is expected to be supported by resilient private consumption and stronger exports, with fiscal measures aiding the recovery, despite ongoing geopolitical strains. Nevertheless, the outlook remains subject to significant risks arising from regional geopolitical developments.¹¹
Italy
The IMF projected that Italy's GDP will have grown by 0.5% in 2025, representing a slight increase when compared with the previous April forecast of 0.4%. It is expected to rise gradually to 0.8% in 2026. This improvement is expected to be driven mainly by domestic demand, with investment supported by Recovery and Resilience Facility (RRF) funding. Higher real wages are anticipated to boost household spending. However, global trade tensions and policy uncertainties could limit overall momentum, and risks remain tilted to the downside due to fragile investor confidence and external challenges. Faster implementation of National Recovery and Resilience Plan (NRRP) projects or stronger demand from European partners could further enhance growth prospects.¹²
Netherlands
In October, the IMF projected that the Netherlands’ real GDP will have grown by 1.4% in 2025, in line with the April 2025 forecast, driven by strong domestic demand, despite US tariffs weighing on trade. Significant wage increases and higher real disposable incomes are expected to boost private consumption, although export growth will be dampened by the tariffs. Growth is projected to ease to 1.2% in 2026 amid ongoing trade pressures, heightened uncertainty, and slower real wage growth. The government deficit is forecast to rise to 2.1% of GDP in 2025 and increase further in 2026.¹³
Norway
The IMF's recent October projection estimates that Norway’s real GDP will have growth by 1.2% in 2025, marking a downward revision from the April forecast. Economic activity in 2025 is expected to be supported by stronger offshore activity, higher investment, stronger export growth, increased government spending, and steady household consumption. Growth is projected to rise to 1.6% in 2026, driven by sustained non-oil activity and wage moderation, although softer global commodity prices pose downside risks.¹⁴
Spain
In October, the IMF projected that Spain’s real GDP will have grown by 2.9% in 2025, slightly higher than the April forecast, before easing to 2% in 2026. Growth is expected to be driven by strong domestic demand, continued strength in the services sector, a resilient tourism industry, and support from EU Recovery and Resilience Facility (RRF) funds, which are fostering investment in infrastructure and sustainable projects. On the external front, weaker export growth and rising imports are expected to slightly reduce GDP growth in 2026.¹⁵
Sweden
The IMF's recent projection estimates Sweden’s real GDP will record a growth of 0.7% in 2025, representing a downward revision from the April forecast. Economic activity strengthened in the second half of the year, supported by higher investment, robust export performance, and increased household consumption. Growth is expected to improve in 2026, with GDP projected to rise by 1.9%, driven by easing inflation, stronger private demand, and a gradual recovery in external trade. Public finances are also set to improve, with the general government deficit expected to remain around 1.5% of GDP in 2025 before narrowing to below 1% in 2026.¹⁶
UK
The IMF projected that the UK's real GDP will have grown by 1.3% in 2025, revised upward from April, driven by higher government spending. Growth is expected to remain broadly unchanged in 2026 as activity moderates amid a cooling labour market which is expected to weigh on household spending. Planned tax increases and spending cuts to address the fiscal gap could weigh on economic momentum, despite some pro-growth measures.¹⁷
Inflation
The IMF’s latest projections show inflation continuing to decline across selected European countries in 2025 and 2026, with most nations seeing significant revisions compared to the April forecast.
Inflation is generally expected to moderate or stabilise in many economies, however, the pace and drivers of this adjustment differ significantly. Factors such as energy prices, wage growth, fiscal policy, and sector-specific pressures continue to shape national inflation trends, reflecting both global influences and domestic developments.
Belgium
Belgium’s inflation is projected at 2.6% for 2025, lower than the April forecast of 3.2%, driven by declining energy prices and subdued imported inflation. However, services inflation is expected to remain relatively strong, mainly due to higher costs for service vouchers and public transport. In 2026, inflation is anticipated to fall further to 1.3%, with price growth easing across both goods and services.¹
Denmark
Denmark’s inflation is projected to reach 1.9% in 2025, in line with the April projection, driven primarily by higher energy and food prices. Meanwhile, inflation for non-energy industrial goods and services has declined noticeably over the year. Looking ahead, headline inflation is expected to rise slightly to 2.1% in 2026, with subdued price pressures from non-energy industrial goods, easing wage growth, and lower commodity costs contributing to a steady inflation trajectory.²
Finland
Inflation is now estimated at 1.8% in 2025, down from the April projection of 2%. The decline is largely driven by lower prices for non-energy industrial goods, continued reductions in energy costs, and moderating inflation in the services sector. Looking ahead, inflation is expected to rise slightly to 1.9% in 2026 supported by domestic consumer demand.³
France
Inflation in France is projected to be 1.1% in 2025, a slight decline from the April forecast of 1.3%, mainly due to reductions in regulated electricity prices and recent decreases in energy commodity costs. In 2026, inflation is expected to rise modestly to 1.5% as energy prices return to normal levels.⁴
Germany
Inflation is projected to moderate further to 2.1% in 2025 and 1.8% in 2026. The substantial decline in wholesale energy prices early in 2025 is expected to result in lower retail energy costs, exerting downward pressure on overall inflation. At the same time, wage negotiations, influenced by historical inflation trends, are likely to sustain moderate wage growth, contributing to some persistence in service-sector inflation.⁵
Ireland
Inflation in Ireland is estimated to remain broadly stable over the next two years, at 1.7% in both 2025 and 2026, slightly below the April forecast of 1.9% for 2025. This moderation reflects lower energy and commodity prices and reduced costs for non-energy industrial goods, partly offset by higher food prices and persistent services inflation.⁶
Israel
Inflation is expected to rise to 3.2% in 2025, slightly higher than the April forecast of 2.7%, driven by supply constraints, domestic price pressures, and volatility in key components such as energy and food. Prices for non-tradable goods, including housing and services, continue to rise more rapidly than those for tradable goods. Inflation is projected to ease to 2.2% in 2026 as supply constraints diminish.⁷
Italy
Lower energy costs and a stronger euro are set to ease price pressures further, bringing inflation down to 1.7% in 2025. By 2026, inflation is expected to rebound to 2%, in line with the European Central Bank’s (ECB) target.⁸
Netherlands
Inflation in the Netherlands is now estimated at 2.9% for 2025, slightly above the April forecast of 2.8%. This upward revision mainly reflects continued pressure from strong wage growth, rising rents, and high prices for services and processed food, partly linked to earlier tax increases. Although energy prices are expected to decline, inflation will remain above the euro area average due to persistent domestic cost factors. In 2026, inflation is projected to ease to 2.4%, as the effects of previous tax hikes fade and energy prices moderate, helping price pressures to gradually subside.⁹
Norway
Inflation is expected to ease to 2.4% in 2025, down from the April forecast of 2.6%. This moderation is mainly driven by slower increases in food prices, which offset faster rises in housing and transport costs, along with the dampening effects of high interest rates and slower wage growth. In 2026, inflation is projected to remain broadly unchanged from 2025 levels.¹⁰
Spain
Inflation in Spain is expected to slow to 2.4% in 2025, slightly above the April forecast of 2.2%. The is mainly due to easing food and service prices, although higher VAT on electricity may temporarily increase energy costs. Wages are expected to rise more quickly than prices, but real income growth will moderate. In 2026, inflation is projected to ease further to 2%, bringing it in line with the ECB target.¹¹
Sweden
Inflation in 2025 is expected to average at 2.3%, remaining slightly above the target as food prices continue to rise, although lower energy and import prices help to ease overall pressures. In 2026, inflation is projected to decline further to 1.6%, as earlier supply-related price increases fade, the stronger krona reduces import costs, wage growth remains modest, and weak demand keeps price pressures contained.¹²
UK
Inflation in the UK is estimated at 3.4% in 2025, representing an upward revision from the April forecast of 3.1%. This increase reflects persistent price pressures, partly due to rises in government-regulated prices. In 2026, inflation is projected to ease to 2.5% as wage growth moderates and labour market conditions loosen. By the end of 2026, inflation is expected to move closer to the Bank of England’s 2% target, signalling a gradual normalisation of price dynamics.¹³ ¹⁴
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