BusinessEurope Economic Outlook Spring 2026 – Geopolitical stresses worsen EU’s economic outlook

Executive summary

Economic growth in Europe is expected to remain subdued over the forecast horizon. We project EU GDP growth at 1.2% in 2026, a downward revision of 0.1 pp compared with our Fall 2025 Outlook. Growth in the
euro area is expected to reach 1.0%, 0.2 pp lower than previously anticipated. A modest improvement is foreseen in 2027, with growth rising to 1.4% in the EU and 1.2% in the euro area. The outlook continues
to be weighed down by heightened geopolitical tensions in the Middle East, rising energy prices, modest investment momentum, and persistent uncertainty surrounding global trade.

After easing between late 2024 and early 2026, inflationary pressures have reemerged. Consumer prices began accelerating again from March 2026, largely driven by the escalation of the Middle East crisis and the resulting surge in energy costs. Inflation is now expected to average around 2.8% in both the EU and the euro area in 2026 before moderating again in 2027. This development is a major concern for BusinessEurope members. All respondents report concerns about inflation, with around 40% describing themselves as very concerned.

Business sentiment has deteriorated markedly amid geopolitical instability, rising costs, and continued regulatory burdens. A majority of BusinessEurope members report a worsening business climate compared with six months ago, with 62% of respondents reporting a worsening for industry and around half for the service sector. Despite the increasingly challenging environment, investment intentions have remained relatively resilient. As of the end-April 2026 survey cut-off date, none of our members expected investment to decline over the following six months. Most anticipated stable investment levels, with 61% expecting no change in industrial investment and 55% reporting the same for services, while the remainder expected investment to increase. However, the worsening business climate underlines the urgency for action.

Labour markets are expected to remain comparatively resilient despite the weaker economic backdrop. Unemployment should stay close to historically low levels, while employment growth continues at a more moderate pace. However, renewed inflationary pressures could potentially dampen household consumption. Over the medium term, digitalisation and the adoption of AI by companies are expected to support labor productivity growth, albeit the magnitude of these gains remains uncertain.

Public finances continue to face growing pressures. Government deficits are projected to reach 3.5% of GDP in the EU and 3.4% in the euro area in 2026, while average public debt levels are expected to rise to 84.2% and 89.2% of GDP, respectively. In several countries, debt dynamics are raising increasing concerns about fiscal sustainability.

Trade is expected to provide only limited support to growth. Despite the recent signing of new trade agreements, EU export growth is forecast to remain modest – at 1.7% in 2026 and 1.9% in 2027 – constrained by competitiveness challenges, tariffs, persistent global uncertainty, and the lagged effects of the euro’s appreciation. Imports are projected to outpace exports, leading to negative net exports. Supported by relatively resilient domestic demand, import growth is expected to hit 2.4% in 2026 and 2.1% in 2027.

The balance of risks remains tilted to the downside. Our estimates may prove somewhat optimistic, as the forecast cut-off date coincided with the early stages of the Middle East crisis and incorporated the assumption of a relatively swift resolution of the Strait blockade. As the disruption has persisted, the risks of higher inflation, weaker investment, and a more pronounced slowdown in economic activity have increased. Depending on how rapidly the traffic disruption in the Strait of Hormuz will be eased by the emerging agreement, the evolution of inflation could change.