Eurozone Key Themes 2026: Four trends to watch
2026 will be a year of dull growth for Eurozone as ambition meets reality.
We expect the Eurozone economy to gain momentum in 2026, but without a strong policy boost, its economic growth will be lacklustre. Although the gap in performance between the core and periphery should narrow, country divergences will remain large. In this environment, we think four themes will be key to the outlook.
Below is an abridged view of our 2026 Eurozone Key Themes analysis. To view the full report, please complete the form on the right.
2026 Eurozone key theme 1
Hopes of a major fiscal boost look too optimistic
Expectations of a large fiscal pivot in Europe are, in our view, overstated. Plans for higher defence spending and Germany’s fiscal expansion have generated hopes of a region-wide stimulus wave in 2026, yet we think the actual fiscal impulse will be modest.
2026 Eurozone key theme 2
Second China shock will increasingly define European policy
While US tariffs have dominated recent headlines, a more consequential long-term shift is underway: China becoming a major trade adversary to Europe. China is rapidly expanding its footprint in sectors such as electric vehicles, batteries and renewable technologies, challenging Europe’s competitiveness in third-country markets.
Although Europe has little appetite to embark on a trade war, the challenge from China is likely to increasingly define Europe’s defensive trade policy. Tariffs on Chinese electric vehicles have attracted a lot of attention, but they’re just the first in a series of skirmishes.
2026 Eurozone key theme 3
The AI investment boom will bypass Europe
While the US is experiencing a significant capex boom linked to AI and data infrastructure, Europe is not. The differences are staggering: European investment in data centres was estimated at €8.7bn (0.3% of total investment) for 2024, whereas large tech companies in the US plan to invest around $370bn this year (7%).
Europe will still benefit from higher productivity over time as AI adoption increases, but these gains will take years to influence aggregate growth. For 2026, AI is unlikely to play a meaningful role in lifting Eurozone activity.
2026 Eurozone key theme 4
Inflation is no longer a concern for policymakers
Inflation is back to target and is no longer a concern for policymakers in the Eurozone. We expect price pressures will remain soft, and inflation will fall below the 2% target in 2026—a view that the European Central Bank also shares. Long-term rates, however, are likely to remain elevated due to Germany’s widening deficit and higher term premia across the region.
Eurozone in 2026: Resilience on the surface, weakness underneath
The Eurozone has held up reasonably well through a difficult external environment in 2025, but the underlying pace of growth has become harder to interpret. Headline GDP figures suggest resilience, yet beneath the surface domestic demand remains weak and the economy continues to grow below potential.
The two-speed Eurozone economy will continue to be a feature in 2026, with Southern European economies generally growing at a much faster pace than the region’s core, albeit to a lesser extent than in previous year.
For businesses, the takeaway is clear: it is no longer enough to look only at immediate markets or rely on headline macro data as a guide. Stable headline growth figures mask the real pressures and opportunities shaping the Eurozone economy, from ongoing fragmentation across markets and sectors, to intensifying competitive pressures from China, limited policy support, uneven AI adoption, and an investment environment still defined by uncertainty.
It is therefore crucial to understand these underlying dynamics, which will be critical for planning, market prioritisation and risk management. Businesses need clarity on the underlying dynamics driving divergence across markets, and how these shifts will translate into real-world risks and opportunities in 2026.
Our report Eurozone Key Themes 2026: Dull growth as ambition meets reality, provides deeper insights into these themes, their implications for European economies and where the major opportunities and risks lie. To request access to the full report, please complete the form.
