BusinessEurope Economic Outlook Autumn 2026 – Short-term resilience masks inflationary and fiscal risks

Executive summary

Economic growth in Europe has proved more resilient than expected in the face of a renewed energy shock. We project EU GDP growth at 1.4% in 2026, an upward revision of 0.2 pp compared with our Spring Outlook, and euro area growth at 1.2%, also 0.2 pp higher than previously anticipated. Growth is expected to remain at 1.4% in the EU and 1.2% in the euro area in 2027, unchanged from our spring projections, supported mainly by domestic demand. So far, the impact of the energy shock on economic activity has remained contained, with the expansion of AI providing support to investment and exports. Preliminary estimates for the third quarter point to continued, though slower, growth, with performance varying widely across countries.

Its effect on prices, by contrast, has been more pronounced. Annual inflation rose to 3.8% in September in both the EU and the euro area, as energy inflation reached 18.9%. Our members now expect inflation to average 3.0% in the EU and 3.1% in the euro area in 2026, above the 2.8% expected in spring, before easing to 2.4% in both areas in 2027. Concerns remain widespread: almost half of our members (46.7%) are very concerned about inflationary dynamics, up from around 40% in spring. A more prolonged energy price shock would add to these pressures, weighing on the competitiveness of businesses of all sizes. The ECB raised its key interest rates in June and September, bringing the deposit facility rate to 2.5%, and its policy continues to enjoy broad support, with around 59% of our euro area members considering it appropriate.

Business sentiment has improved overall since the spring, although the picture remains uneven across countries. In industry, the share of members reporting a positive assessment more than doubled, from 12.5% to 26.7%, while the share reporting a negative assessment fell from 62.5% to 33.0%, and a similar improvement can be observed in services. Nevertheless, our members have revised down their forecast for investment growth for 2026 as a whole to 2.0% in the EU and 1.7% in the euro area, from 2.8% and 2.4% in spring, reflecting uncertainty over energy prices and gradually tightening financing conditions. This means that beyond the short term, the enduring structural investment gap identified in the Draghi report has not narrowed, weighing on productivity, the main determinant of long-term growth, and therefore stressing the long-term challenges to the EU’s economic prosperity and the wellbeing of its population. Artificial intelligence offers an opportunity to partly reverse this trend, but its adoption by European firms remains limited and AI-related investment still lags behind the United States. Moreover, closing the structural investment gap requires focus on improved framework conditions for investments, such as competitive energy costs, reduced regulatory and single market barriers and access to finance.

European labour markets also remain resilient. Our members expect the unemployment rate to stand at 6.0% in the EU and 6.2% in the euro area in 2026, easing slightly to 5.9% and 6.1% respectively in 2027, while wage growth continues to moderate. However, employment growth is slowing and unemployment has edged up over the past year, a sign that labour markets will not remain immune if the energy shock persists.

In another sign that the long-standing structural weaknesses of the EU economy have not been resolved by the short-term resilience, public finances remain under pressure. Government deficits are expected to reach 3.5% of GDP in the EU and 3.4% in the euro area in 2026, and 3.6% and 3.4% respectively in 2027. BusinessEurope members have also become more critical of national fiscal policies: 57% consider the fiscal stance of their own country too expansionary, up from 37% in spring. In several Member States, the combination of rising debt, higher interest costs and delayed consolidation is becoming a growing source of vulnerability, as markets are increasingly sensitive to fiscal risks (this increased risk is explored in depth in Special Section 2 of this publication).

External demand has improved, but trade will provide only limited support to growth. Export growth for 2026 has been revised upwards, to 2.0% in the EU and 1.8% in the euro area, strengthening to 2.3% and 2.1% respectively in 2027. Imports are expected to outpace exports in 2026, before export growth slightly exceeds import growth in 2027. At the same time, competitive pressure from China is intensifying: the EU’s deficit in trade in goods with China reached €360 billion in 2025, or around €1 billion per day, and has continued to widen in 2026, as Chinese surplus production is increasingly redirected towards Europe. Despite the upward revision signalling the short-term resilience and adaptability of EU companies, short-term risks remain clearly tilted to the downside and are building on several fronts at once, while most long-term risks have not lessened. For instance, official forecasts rest on the assumption that the energy shock will gradually ease. With tensions no lower than six months ago, this assumption is fragile and a more prolonged shock would mean weaker growth and higher inflation than currently projected (this is further examined in Special Section 1 of this work). Rising sovereign bond yields, a possible correction in AI-related markets and persistent trade policy uncertainty could further tighten financing conditions and weigh on investment.