Eurozone GDP Flash Estimate Looms Large Ahead of Crucial ECB Decision

Thursday's release of the eurozone GDP flash estimate will be a crucial input for the European Central Bank (ECB) as it prepares to make a key decision on interest rates at its September meeting.

The economy contracted by 0.2% quarter-on-quarter in Q1 2026, and the ECB's response was to raise all three of its key interest rates by 25 basis points on June 11, bringing the deposit facility rate to 2.25%. This marked a shift from the pattern of easing seen over the past few years.

ECB President Christine Lagarde warned that renewed Middle East hostilities and the resulting rebound in oil prices posed upside risk to the bloc's inflation outlook. The markets have reacted accordingly, with market-implied ECB rate probabilities currently putting the chance of a 25-basis-point hike at the September meeting at 79%.

The energy shock has had a significant impact on the eurozone economy, with Brent crude surging past $100 per barrel for the first time since 2022. While oil prices have pulled back somewhat from their peak, they remain volatile and pose a risk to the ECB's inflation target of 2%.