The spring 2026 economic forecasts point to a slowdown in growth as the energy crisis drives up inflation

The spring 2026 economic forecasts point to a slowdown in economic activity, as the conflict in the Middle East is causing a new energy crisis that is fuelling inflation and undermining economic confidence.

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

After reaching 1.5% in 2025, GDP growth in the EU is now forecast to slow to 1.1% in 2026, representing a downward revision of 0.3 percentage points compared with the autumn 2025 economic forecast (1.4%). GDP growth is forecast to reach 1.4% in 2027. Growth projections for the euro area have also been revised downwards, 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 — one percentage point higher than previously forecast — and to fall back to 2.4% in 2027. In the euro area, inflation is also revised upwards, to 3.0% in 2026 and 2.3% in 2027, compared with the autumn forecasts of 1.9% and 2.0%, respectively.

The EU economy will continue to grow, but at a slower pace

As a net energy importer, the EU economy is highly sensitive to the energy disruption caused by the conflict in the Middle East, the second such disruption in less than five years. Rising energy prices translate into higher bills for households and increased business costs that reduce profits across many sectors, effectively diverting income from the EU economy to energy-exporting countries.

With the outbreak of the conflict, consumer confidence fell to its lowest level in 40 months, against a backdrop of growing fears of rising inflation and job losses. However, consumption is expected to remain the main driver of growth. Business investment is also expected to be constrained by tighter financing conditions, lower profits and increased uncertainty. Weakening external demand is also weighing on export growth.

EU investment in energy resilience, particularly following Russia’s large-scale invasion of Ukraine, is paying off. The push towards supply diversification, decarbonisation and reduced energy consumption has put the EU economy in a better position to cope with the current crisis.

Inflation is expected to rise, driven by energy prices

The short-term inflation outlook has deteriorated since the autumn 2025 forecasts, and headline inflation is expected to peak in 2026, before moderating in 2027, as energy commodity prices are expected to decline gradually, although they will remain around 20% above pre-war levels. This upward revision is mainly due to a rise in energy inflation, and data for March and April already show a sharp acceleration.

The long-term decline in the unemployment rate is 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 to 0.3%, rising again to 0.4% in 2027. The long-term downward trend in the unemployment rate is expected to end and stabilise at around 6% in 2027. Nominal wage growth is expected to remain strong, as wages adjust to rising inflation.

The energy shock is placing a further strain on public finances

The general government deficit in the EU is expected to rise from 3.1% of GDP in 2025 to 3.6% by 2027, as a result of the slowdown in economic activity, increased interest expenditure, measures to cushion the impact of rising energy prices on vulnerable households and businesses, and increased defence spending. Public investment in the EU is projected to stabilise at high levels in 2027, despite the end of disbursements from the Recovery and Resilience Facility.

The EU’s 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 projected to rise from 88.7% in 2025 to 90.2% and 91.2% in 2026 and 2027, respectively. This reflects a rise in primary deficits and an increasingly unfavourable interest-growth differential. By 2027, four Member States are expected to have debt ratios exceeding 100% of GDP.

Ongoing supply constraints are weighing on the outlook

The main risk surrounding the forecasts relates to the duration of the conflict in the Middle East and its repercussions on global energy markets. Given the unusually high degree of uncertainty — and the increasingly narrow margin for a rapid normalisation of supply conditions — the baseline forecast is supplemented by an alternative scenario that assumes more prolonged disruptions. In this second scenario, energy commodity prices are projected to rise significantly above the benchmark futures curves, peaking at the end of 2026 before gradually returning to line with them by the end of 2027. In this scenario, inflation would not subside and economic activity would not rebound in 2027, as projected in the baseline forecast. Furthermore, the rise in prices could lead households and businesses to reduce consumption and investment more sharply.

Furthermore, widespread shortages of certain raw materials and inputs (such as some refined petroleum products, helium and fertilisers) could worsen, with repercussions for global supply chains and food affordability.

The continued decline in labour demand — as evidenced by falling job vacancies and hiring rates — could signal a more negative impact on future employment growth.

Ongoing uncertainty surrounding global trade policies and the ongoing reshaping of geopolitical and trade relations could further affect confidence and economic activity.

A faster implementation of structural reforms aimed at removing the long-standing obstacles to EU growth could mark a turning point in the outlook. Strong public investment in sectors such as defence and the energy transition may offset some of the expected weakness in the private sector. Artificial intelligence represents both an opportunity and a risk: increased productivity could support investment in the EU, whilst disruption to the labour market could affect demand.

General context

These projections are based on technical assumptions for exchange rates, interest rates and commodity prices, with a cut-off date of 29 April. As regards other data considered, including assumptions on public policies, these projections take into account information available up to and including 4 May. The projections assume no policy changes unless measures are adopted or credibly announced and specified in sufficient detail. The forecasts include two special sections devoted to the reduction in energy consumption in the EU over the last three decades and the gap in AI adoption. Through a series of boxes, the report also analyses macroeconomic policy responses to energy shocks, manufacturers’ strategies in the face of trade tensions and disruptions, the current loosening of labour markets, the links between gas and electricity prices, and national fiscal policy measures to address the 2026 energy price shock.

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

The European Commission’s autumn 2026 economic forecasts are normally presented in November 2026 and will update the current ones.

More information: European Commission.