Euro Area Economy Surprises with Resilience Amid Middle East Conflict
The euro area economy has been more resilient than expected to the effects of the Middle East conflict. Real GDP growth surprised on the upside in the second quarter of 2026, and short-term indicators point to robust growth in the near term as uncertainty recedes.
The summer heatwave in Europe is expected to have had only a limited and temporary negative impact on economic activity. Over the medium term, domestic demand should continue to be supported by a recovery in real incomes, driven by lower energy inflation, as well as a resilient labour market.
The baseline projections foresee annual real GDP growth of 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028. The outlook for inflation continues to be shaped largely by the energy shock, which is assumed to dissipate, although there is high uncertainty surrounding this assumption.
The economic outlook for the euro area remains highly uncertain amid the ongoing conflict in the Middle East, the blockade of the Strait of Hormuz, and continued volatility in energy prices. The baseline projections are complemented by updated versions of three alternative scenarios: a milder scenario, an adverse scenario, and a severe scenario.