BNP Paribas economists project that Eurozone GDP growth will slow from 1.5% in 2025 to 1.0% in 2026, before slightly recovering to 1.3% in 2027. This deceleration is attributed to spillovers from the Middle East conflict, which are expected to impact the region's economic activity. Despite these headwinds, the Eurozone economy is anticipated to withstand the energy shock, supported by ongoing investments in defence, artificial intelligence, and electrification, which are seen as factors that will continue to boost intra-EU trade [1].
Inflation is forecast to rebound, rising from 2.1% in 2025 to 3.0% in 2026 and further to 3.3% in 2027. In response to this resurgence in inflation, BNP Paribas expects the European Central Bank (ECB) to implement two 25 basis point rate hikes in 2026. The first of these hikes is anticipated in June, which would bring the ECB's deposit facility rate up to 2.5% [1].
The projections suggest that while the Eurozone will face slower growth and higher inflation, strategic investments and policy tightening by the ECB are expected to help the region manage these challenges. No immediate market reactions or analyst opinions beyond BNP Paribas' forecasts are discussed in the source [1].
CONCLUSION
BNP Paribas anticipates a period of slower Eurozone growth and higher inflation, prompting the ECB to raise rates in 2026. Despite these challenges, investments in key sectors are expected to support economic resilience. Market participants should prepare for a tighter monetary policy environment and persistent inflationary pressures.