Europe Growth Forecast Lifted on Resilient Demand, but Persistent Risks Remain

S&P Global Ratings has revised its growth forecast for Europe upwards due to stronger-than-expected consumer demand. The ratings agency expects the eurozone and UK economies to grow by 0.9 per cent and 1.3 per cent, respectively, in 2026, followed by 1.1 per cent growth in 2027.

The improvement was partly driven by stronger consumer spending despite weaker purchasing power, a significant decline in household saving, and a rebound in net exports. Domestic demand in Ireland fell 0.8 per cent in the second quarter, while the rebound in net exports was particularly visible.

European consumer spending resilience was one of the main macroeconomic surprises of the past three months. Across Europe, real household purchasing power fell by around 0.5 percentage points of gross disposable income in the second quarter because of higher inflation, while real consumer spending increased by an average 0.4 per cent.

The agency warned that persistent inflation, higher long-term interest rates, and the summer drought continue to create pressure for consumer markets, costs, and planning horizons relevant to textile and apparel supply chains.