FRANKFURT, September 10 — The European Central Bank’s September 2026 staff macroeconomic projections describe a euro area economy that has weathered the Middle East conflict better than the bank expected, with growth revised up and an energy-driven inflation spike now expected to peak before the end of the year. The headline numbers: annual real GDP growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Adjusting for volatility in Irish data, growth is put at 1.2% in 2026 and 2027, rising to 1.4% in 2028.
Compared with the June 2026 projections, GDP growth has been revised up by 0.1 percentage points for 2026 — 0.3 percentage points when adjusting for the Irish volatility — reflecting data surprises and positive survey indicators that imply a carry-over effect into 2027, leading to a 0.2 percentage point revision for that year. For 2028, growth is unrevised.
The mechanics of the upgrade
Real GDP growth surprised on the upside in the second quarter of 2026, and short-term indicators point to robust growth in the near term. The bank’s baseline assumes uncertainty recedes, confidence improves and the energy supply shock stemming from the Middle East conflict gradually eases. The summer heatwave is expected to have had only a limited and temporary negative impact on activity.
Over the medium term, domestic demand should continue to be supported by a recovery in real incomes, driven by lower energy inflation, and by a resilient labour market, with the unemployment rate expected to reach new historical lows. Rising government spending on infrastructure and defence, especially in Germany, complemented by investments related to artificial intelligence, should also support growth in the later years of the projection horizon.
On the external side, export growth should pick up on the back of strengthening foreign demand, although persistent competitiveness challenges will continue to weigh on exports. The euro area is expected to benefit less than some other economies from strong global AI-related demand, reflecting the smaller size of its AI goods sector.
Inflation peaks, then falls
The outlook for inflation continues to be shaped largely by the energy shock, which is assumed to dissipate — though the bank flags high uncertainty surrounding that assumption. Headline inflation, as measured by the Harmonised Index of Consumer Prices, is expected to peak at 3.6% in the fourth quarter of 2026, driven by the surge in energy prices resulting from the Middle East conflict, with increases in crude oil prices amplified by additional upward pressures on the prices of refined oil products and on wholesale gas and electricity prices.
As the main impact of the conflict on energy prices drops out of the year-on-year comparison, headline HICP inflation is expected to fall to 2.5% in the second quarter of 2027 and to hover close to 2.0% thereafter. The profile of headline inflation masks differences in the speed at which the energy shock is transmitted across the main components.
A fast pass-through to consumer energy prices implies that energy inflation would quickly follow the assumed decreases in energy commodity prices, turning negative in the course of 2027, and then increasing in 2028 with the introduction of the EU Emissions Trading System 2. The catch is in the assumption itself. The entire inflation path rests on the energy shock dissipating on schedule, and the bank is explicit that uncertainty around that is high.
Watch the fourth-quarter HICP print for the peak, and the pass-through to consumer energy prices for whether the decline arrives as projected.
