The euro area economy has performed better than expected despite the sharp rise in energy prices. The conflict in Iran has raised costs for companies and pushed up consumer prices, but growth has remained close to potential. So far, inflation has mainly been energy-driven rather than spreading broadly to other goods and services. We are therefore slightly more positive on the outlook than before and now expect ECB policy rates to stay higher in 2027. However, uncertainty is unusually high, especially as the outlook depends heavily on energy prices. Our forecast assumes that energy prices broadly follow current futures markets.
We expect euro area GDP to grow by 0.8% in 2026, up from 0.7% in our previous forecast, and by 1.4% in 2027, up from 1.2%. Manufacturing is recovering more strongly than expected, with higher new orders supporting production. One driver is the rapid increase in…
