Euro Area Economy Surprises with Resilience Amid Energy Price Hike

The euro area economy has shown surprising resilience despite the significant increase in energy prices. According to recent research, growth remains close to potential, and inflation is mainly driven by rising energy costs rather than spreading across other goods and services.

As a result of this assessment, experts now expect ECB policy rates to remain higher in 2027 than previously forecasted. However, they acknowledge that uncertainty is unusually high due to the reliance on energy price predictions.

The research points to several factors contributing to the euro area's robust performance, including the recovery of manufacturing, which has been supported by strong new orders and increased demand for equipment and components driven by global investments in artificial intelligence. Additionally, fiscal policy is providing more support, particularly as German public spending has seen a notable increase.

The forecast assumes that energy prices will follow current futures markets. As such, euro area GDP is expected to grow by 0.8% in 2026 and 1.4% in 2027, surpassing previous projections of 0.7% and 1.2%, respectively.