Preliminary estimates pointed to growth by 0.1% – their confirmation was expected by analysts surveyed by Trading Economics. In the fourth quarter of 2025, the macro-region’s economy grew by 0.2% quarter-on-quarter (by 1.2% in annual terms). It should be recalled that if GDP declines for two consecutive quarters, we are already talking about a technical recession. Among the major economies of the eurozone, the decline in January-March was observed in France – by 0.1% (growth of 0.2% in October-December). In Germany, GDP growth amounted to 0.3% (0.2%), in Spain – 0.6% (0.8%).
Eurostat’s estimate for annualized growth of the European economy in the first quarter of 2026 was also lowered to 0.3% from 0.8%. This is the weakest indicator since the end of 2023.
The main reason for the revision of estimates was not a synchronized slump in several major economies in the region, but a sharp decline in GDP in Ireland (-12.1%), whose performance is highly dependent on the operations of international corporations. However, general factors, including a decline in investment and external supplies, also made a notable contribution to the actual figure. Thus, exports of goods and services fell 0.9% year-on-year in the first quarter. Consumer demand remained weak, as households were uncertain about the near-term outlook due to the war in the Middle East.
Inflation impact
The weak performance reflected pressures from tight energy supplies, rising inflation related to the conflict in the Middle East, and the European Central Bank’s preparations to tighten monetary policy. On the spending side, net trade and inventory changes subtracted 0.3 and 0.1 percentage points from GDP, respectively, while fixed investment fell 0.3%. Household consumption and government spending also slowed, rising just 0.2% and 0.5%.
Rising energy prices caused by the conflict in the Middle East continue to affect inflation as well. The rate reached 3.2% in May after 3% in April and 2.6% in March. Increasing inflationary pressure is one of the key arguments in favor of tightening the monetary policy (MPC) of the European Central Bank (ECB).
Analysts expect that on June 11, the regulator will raise the deposit rate (it is the rate that determines the course of monetary policy) by 25 basis points, up to 2.25% per annum. In general, economists expect two increases before the end of the year. If the conflict in the Middle East will end in the second half of 2026, then the ECB will be able to return to easing the JCP by the middle of 2027, analysts believe.
