Spring 2026 Economic Forecast shows slowdown in growth as energy shock drives up inflation

This article is brought to you in association with the European Commission.

The Spring 2026 Economic Forecast projects weaker economic activity, as the conflict in the Middle East triggers a new energy shock that reignites inflation and shakes economic sentiment.

Before the end of February 2026, the EU economy was set to keep expanding at a moderate pace alongside a further decline in inflation, but the outlook has changed substantially since the outbreak of the conflict. Inflation started picking up a few weeks after the outbreak of the conflict, driven by the sharp increase in energy commodity prices, and economic activity is losing momentum. The situation is set to improve slightly in 2027 if tensions on energy markets ease.

After reaching 1.5% in 2025, GDP growth in the EU is now projected to slow down to 1.1% in 2026—a downward revision of 0.3 percentage points from the Autumn 2025 Economic Forecast projection (1.4%). GDP growth is then set to edge up to 1.4% in 2027. Growth projections for the euro area are similarly revised down, to 0.9% in 2026 and 1.2% in 2027, from 1.2% and 1.4% respectively. Inflation in the EU is expected to reach 3.1% in 2026—a full percentage point higher than previously forecast—easing again to 2.4% in 2027. In the euro area, inflation is also revised up to 3.0% in 2026 and to 2.3% in 2027, compared to the autumn projections of 1.9% and 2.0% respectively.

EU economy to keep growing, but at a slower pace

As a net energy importer, the EU’s economy is highly susceptible to the energy shock caused by the conflict in the Middle East—the second such shock in less than five years. The spike in energy prices means higher household bills and surging business costs that reduce profits for many industries, effectively redirecting income out of the EU economy and into energy-exporting countries.

The onset of the conflict saw consumer confidence drop to a 40-month low, amid mounting fears of surging inflation and job losses. Still, consumption is expected to remain the main driver of growth. Business investment is also set to be constrained by tighter financing conditions, lower profits and heightened uncertainty.  Weaker external demand is also weighing on export growth.

The EU’s investment in energy resilience, especially in the aftermath of Russia’s full-scale invasion of Ukraine, is paying off. The push towards supply diversification, decarbonisation, and lower energy consumption has left the EU economy better placed to absorb today’s shock.

Inflation set to rise, driven by energy prices

The short-term inflation outlook has deteriorated since the Autumn 2025 Forecast, with data from March and April already showing a sharp acceleration driven by energy prices. Headline inflation is now set to peak in 2026 before easing in 2027, as energy commodity prices are expected to gradually decline, albeit remaining around 20% above pre-war levels.

Long-term decline in unemployment rate coming to an end

In 2025, employment grew by 0.5%, adding more than 1 million jobs to the EU economy. In 2026, employment growth is forecast to slow down to 0.3%, edging up again to 0.4% in 2027. The long-term decline in the unemployment rate is set to come to an end, stabilising at around 6% in 2027. Nominal wage growth is set to remain strong, as wages adjust to higher inflation.

Energy shock adds new burden to public finances

General government deficit in the EU is expected to increase from 3.1% of GDP in 2025 to 3.6% by 2027, reflecting subdued economic activity, higher interest expenditure, measures to cushion the impact of higher energy prices on vulnerable households and firms, and increased defence spending. Public investment in the EU is set to stabilise at high levels in 2027, despite the end of Recovery and Resilience Facility disbursements.

The EU debt-to-GDP ratio is also projected to rise from 82.8% in 2025 to 84.2% in 2026 and 85.3% in 2027.In the euro area the ratio is set to rise from 88.7% in 2025 to 90.2% and 91.2% in 2026 and 2027 respectively. This reflects higher primary deficits and an increasingly unfavourable interest-growth differential. By 2027, four Member States are expected to have debt ratios above 100% of GDP.

Continued supply tensions weigh on the outlook

The major risk surrounding the forecast concerns the duration of the conflict in the Middle East and its implications for global energy markets. Given the unusually high degree of uncertainty—and the narrowing window for a rapid normalisation of supply conditions—the baseline forecast is complemented by an alternative scenario assuming more prolonged disruptions. Under this scenario, energy commodity prices are assumed to rise significantly above baseline futures curves, peaking in late 2026 before gradually realigning with them by the end of 2027. Under this scenario, inflation would not ease and economic activity would fail to rebound in 2027 as projected in the baseline forecast. In addition, higher prices could prompt households and firms to scale back consumption and investment more sharply.

Moreover, outright supply shortages for specific commodities and inputs, for example some refined oil products, helium and fertilisers, could intensify with knock-on effects for global production chains and food affordability.

The ongoing softening of labour demand—as evidenced by declining job vacancies and hiring rates—could signal a more adverse impact on employment growth ahead.

Continued uncertainty surrounding global trade policies and the ongoing reconfiguration of geopolitical and trade relationships could further weigh on confidence and activity.

Faster implementation of structural reforms addressing long-standing bottlenecks to EU growth remains an important upside risk to the outlook. Strong public investment in sectors such as defence and the energy transition may offset some of the weakness expected in the private sector. Artificial intelligence represents both opportunity and risk: productivity gains could support investment in the EU, while labour market disruption could weigh on demand.  

Background

This forecast is based on technical assumptions for exchange rates, interest rates and commodity prices, with a cut-off date of 29 April. For all other incoming data, including about government policies, this forecast incorporates information up until, and including, 4 May. The projections assume no policy changes unless measures are adopted or credibly announced and specified in sufficient detail. The forecast includes two special issues on the reduction of energy use in the EU over the past three decades and on the AI adoption divide. Through a number of boxes, it also analyses the macroeconomic policy responses to energy shocks, manufacturers’ strategies to trade tensions and disruptions, the ongoing easing of labour markets, gas-electricity price linkages, and national fiscal policy measures to address the 2026 energy price shock.

The European Commission publishes two comprehensive forecasts (spring and autumn) each year, covering a broad range of economic indicators for all EU Member States, candidate countries, EFTA countries and other major advanced and emerging market economies.

The European Commission’s Autumn 2026 Economic Forecast will update the projections in this publication and is expected to be presented in November 2026.

For more information

Full document: Spring 2026 Economic Forecast: Slowdown in growth as energy shock drives up inflation

Follow Commissioner Dombrovskis on X (@VDombrovskis) and Bluesky (@valdisdombrovskis.ec.europa.eu)

Follow DG ECFIN on X: @ecfin