Eurozone: Higher inflation and ECB hikes support Euro – BNP Paribas

BNP Paribas economists project Eurozone Gross Domestic Product (GDP) growth to slow from 1.5% in 2025 to 1.0% in 2026, with inflation rebounding to 3.0% in 2026 and 3.3% in 2027. Activity is expected to withstand energy shocks, supported by investment in defence, AI (Artificial intelligence) and electrification, while the European Central Bank (ECB) is seen delivering two 25 bps hikes in 2026, lifting the deposit rate to 2.5%.

Growth slows as inflation rebounds

"Eurozone growth would slow due to spillovers from the Middle East conflict."

"GDP growth, which reached 1.5% in 2025, would slow down to 1.0% in 2026 and 1.3% in 2027, while inflation would rebound to 3.0% in 2026 and 3.3% in 2027 (compared to 2.1% in 2025)."

"Activity would nevertheless withstand the energy shock, supported by investment in defence, AI, and electrification, which should continue to boost intra-EU trade."

"As inflation rebounds, two 25-basis-point hikes in the ECB’s policy rate would take place in 2026 – with the first hike expected in June – pushing the deposit facility rate to 2.5%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)