Euro Area GDP

Economic growth slows in the first quarter of 2026

GDP growth disappoints in Q1: According to a preliminary flash estimate, the euro area's GDP grew 0.1% on a seasonally adjusted quarter-on-quarter basis in Q1, following a 0.2% expansion in the previous quarter. Q1's reading was the weakest since Q4 2023 and surprised market analysts to the downside, with the majority anticipating steady GDP growth. On a working-day and seasonally adjusted year-on-year basis, GDP grew 0.8% in Q1, following 1.3% growth in the prior quarter.

Iran war begins to weigh on euro economy: According to the European Central Bank (ECB), domestic demand was the key driver of growth in the bloc, aided by a strong labor market. Nevertheless, the ECB noted that the Iran war weighed on economic activity by hurting business and consumer confidence and by straining supply chains through longer delivery times and higher input costs. Notably, Q1’s reading reflects only the first month of the war, and its full impact on the eurozone is yet to be reflected in the data. Preliminary data show that among the euro area’s largest economies, GDP growth in Germany strengthened more than expected, Spain remained a bright spot, and Italy slowed less than anticipated, though a stagnation in France disappointed markets. Meanwhile, an unusually weak reading in Ireland—whose GDP figures are volatile due to a heavy multinational company footprint—detracted nearly 0.1 percentage points from headline euro area growth. A detailed breakdown is due on 5 June.

Energy price shock to weigh on GDP growth: Heading to Q2, the eurozone economy is forecast to grow weakly, close to Q1’s pace, with private spending projected to decelerate. The Iran war has stoked energy prices and dented economic sentiment at the start of the quarter, which could weigh on household consumption across the euro area. Looking at 2026 as a whole, our Consensus for the eurozone’s GDP growth has been cut by a fifth since January due to the bloc’s exposure to energy price spikes. Panelists have downgraded their projections for private spending and exports in recent weeks, with potential ECB rate hikes likely to weigh further on demand. Prolonged supply chain disruptions and higher-for-longer energy costs pose the main downside risks to GDP growth.

Panelist insight: Nomura analysts commented: “We expect higher energy prices to dampen euro area growth due to the economy’s heavy reliance on energy imports. Inflation is coming in above target in H1 2026 due to the Iran war. Services inflation is sticky, but moderating. We have brought forward our two ECB rate hikes (previously 2028) to June and July this year as a result of higher energy prices.” Berenberg’s Holger Schmieding said: “The Iran war has likely pushed the Eurozone into stagflation. Economic sentiment has plunged from a 33-month high of 98.9 in January to 93.0 in April, the lowest level since November 2020. Even worse, the on-off US-Iranian negotiations suggest that the Strait of Hormuz will be closed for longer than we had expected so far. Instead of assuming that oil prices in May will start a gradual descent from an average of $100 per barrel Brent crude in April to $75 by the end of 2026, we now assume that prices in May will be at least as high as in April before declining to their new normal level by early 2027. This will delay the rebound in growth to Q4. As a result, we cut our call for GDP growth in 2026 from 0.8% to 0.6%, down by more than half from our February projection of 1.3%.”

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