Euro area
The first estimates of euro area balance showed a €7.8 bn surplus in trade in goods with the rest of the world in March 2026, compared with +€34.1 bn in March 2025.
The euro area exports of goods to the rest of the world in March 2026 were €265.3 billion, a decrease of 5.5% compared with March 2025 (€280.6 bn).
Imports from the rest of the world stood at €257.4 bn, a rise of 4.4% compared with March 2025 (€246.5 bn).
In March 2026, the euro area trade balance registered a surplus of €7.8 bn, down from €11.1 bn in February 2026.
Compared with March 2025, when the surplus was €34.1 bn, the latest figure represents a sharp decrease of €26.3 bn. This decline was primarily driven by substantial reductions in the surpluses of the chemicals and related products group and the machinery and vehicles group. The first group recorded the most pronounced drop, with its surplus nearly halving, from €41.8 bn in March 2025 to €18.9 bn in March 2026, while the second group saw a less steep but still significant decline, with its surplus falling from €17.6 bn to €9.7 bn over the same period.
In January to March 2026, the euro area recorded a surplus of €16.6 bn, compared with €55.4 bn in January-March 2025.
The euro area exports of goods to the rest of the world fell to €713.1 bn (a decrease of 6.5% compared with January-March 2025), and imports fell to €696.5 bn (a decrease of 1.5% compared with January-March 2025).
Intra-euro area trade rose to €685.5 bn in January-March 2026, up by 1.9% compared with January-March 2025.
European Union
The EU balance showed a €5.9 bn surplus in trade in goods with the rest of the world in March 2026, compared with +€34.0 bn in March 2025.
The extra-EU exports of goods in March 2026 were €233.9 billion, down by 8.7% compared with March 2025 (€256.1 bn).
Imports from the rest of the world stood at €228.0 bn, up by 2.7% compared with March 2025 (€222.1 bn).
In March 2026, the EU trade balance stood at a surplus of €5.9 bn, down from €9.1 bn in February 2026. This decline was influenced by a widening deficit in the energy group, which deteriorated from €-21.9 bn in February 2026 to €-28.6 bn in March 2026, partially offset by the increase of surplus in the chemicals and related products group, which moved from €14.9 bn to €17.6 bn over the same period.
Compared with March 2025, when the EU recorded a surplus of €34.0 bn, the latest figure represents a sharp decrease of €28.1 bn. This decline was primarily driven by substantial reductions in the surpluses of the chemicals and related products group and the machinery and vehicles group. The chemicals and related products group saw its surplus nearly halve, dropping from €40.8 bn in March 2025 to €17.6 bn in March 2026. Similarly, the machinery and vehicles group experienced a significant decline, with its surplus falling from €21.6 bn to €11.3 bn over the same period.
In January to March 2026, the EU recorded a surplus of €8.4 bn, compared with €50.7 bn in January-March 2025.
The extra-EU exports of goods fell to €630.0 bn (a decrease of 8.9% compared with January-March 2025), and imports fell to €621.6 bn (a decrease of 3.0% compared with January-March 2025).
Intra-EU trade rose to €1 068.4 bn in January-March 2026, +2.7% compared with January-March 2025.
Annex – Seasonally adjusted data
In March 2026 compared with February 2026, euro area seasonally adjusted exports increased by 2.1%, while imports increased by 3.5%. The seasonally adjusted balance was €3.5 bn, a fall compared with February (€6.5 bn).
In March 2026 compared with February 2026, EU seasonally adjusted exports increased by 1.5%, while imports increased by 3.2%. The seasonally adjusted balance was €0.1 bn, a fall compared with February (€3.6 bn).
In the first quarter of 2026 euro area exports to non euro area countries rose by 0.4%, while imports rose by 1.6%. Intra euro area trade rose by 0.7%.During the same period, EU exports to non-EU countries decreased by 0.1%, while imports rose by 1.7%. Intra-EU trade increased by 0.9%.
Click here to access the interactive charts and tables. 
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Executive summary

Before the outbreak of the conflict in the Middle East, the global economy was gaining momentum. A challenging geopolitical environment and US tariff uncertainty continued to weigh on growth, but easing inflation and a robust investment cycle related to the unfolding AI revolution provided important support. The EU economy was likewise strengthening while inflationary pressures were further abating. Weak competitiveness was a source of concern and public finances required attention, but the economy also showed resilience, including a robust labour market and solid private sector balance sheets.
The conflict materially changed this picture, delivering one of the most significant global energy supply disruptions in recent history—coming less than five years after the energy shock triggered by Russia’s war of aggression against Ukraine.
The virtual closure of the Strait of Hormuz has curtailed seaborne flows of oil and LNG by around 15% and 20%, respectively.
Moreover, the targeting of energy infrastructure in the region has caused significant damage, including to regional refining capacity. The disruption to exports of refined petroleum products has thus been particularly pronounced, reflecting the Gulf’s role as a major refining hub and the limited scope for rerouting fuel exports through alternative transport routes. Between 27 February—the eve of the US and Israeli attacks on Iran—and 29 April—the cut-off date for the technical assumptions underpinning this forecast—gas prices increased by 50% and crude oil prices by 65%, while refining margins for key products such as diesel and jet fuel reached historically elevated levels.

Global growth (excluding the EU) is now projected at 3.1% in 2026 and 3.5% in 2027. For 2026, the small downgrade with respect to the Autumn 2025 Forecast (-0.3 pps.) must be considered in the context of a stronger-than-expected momentum in the run-up to the conflict. Moreover, the aggregate figure masks significant heterogeneity across countries and regions. The outlook for the US—a major net energy exporter—has strengthened, supported by the robust AI-related investment cycle and favourable terms-of-trade. In China, growth is expected to gradually moderate amid subdued consumption. By contrast, the outlook has weakened for most energy-importing economies, especially emerging markets in Asia, reflecting their high energy intensity. Growth prospects in the Middle East and North Africa region have also weakened markedly, owing to the more direct effects of the conflict.
Both the nature of the current crisis and the economic context in which it unfolds differ in important respects from those prevailing after Russia’s full-scale invasion of Ukraine. First, at the time, Europe was heavily reliant on pipeline gas from Russia, with limited scope for substitution and strong dependence on fixed infrastructure. The abrupt disruption of gas flows led to unprecedented price spikes of fifteen to twenty times compared to the autumn 2021 levels. By contrast, the current shock affects globally traded energy commodities—oil and liquified natural gas (LNG). These markets are highly fungible, allowing supply to be reallocated across regions, spreading price pressures more evenly across the global economy. As a result, although energy prices have risen rapidly, oil and especially gas prices remain below the peak levels reached in 2021–22. Second, the EU has significantly reduced its reliance on fossil fuels, both through the expansion of renewable energy, which is weakening the pass-through from gas to electricity prices (see Box I.6.1), and a sizeable reduction in energy use by industry and households (see Special Issue 1). Finally, the EU economy entered the current crisis in a more mature and stable phase of the business cycle than in 2021-22, when the post-pandemic recovery had fuelled inflation and labour market pressures.
After reaching 1.5% in 2025, EU GDP growth is now projected to slow down to 1.1% this year—0.3 pps. lower than in the Autumn 2025 Forecast—while inflation is expected to rise to 3.1%, an upward revision of a full percentage point compared to the Autumn 2025 Forecast.
The impact of the energy shock is set to extend into 2027, with GDP growth picking up to a modest 1.4% and inflation easing to 2.4%—still some 0.3 pps. higher than projected in autumn 2025. The downward revision to growth in 2026 compared to autumn partly reflects slightly stronger-than-expected growth conditions at the beginning of 2026. Moreover, the inflation forecast for 2027 is influenced by the postponement of the roll-out of new EU Emissions Trading System (ETS2), which, in the previous forecast round, was estimated to add 0.2 to 0.3 pps. to inflation.
Futures energy prices—which underpin the technical assumptions to the forecast—point to a relatively swift, albeit partial, normalisation of supply conditions, with oil and gas prices expected to peak in the current quarter and decline to around 20% above pre-war levels by end 2027. Futures prices provide an objective and market-based benchmark for energy price assumptions in macroeconomic forecasting but are not perfect predictors of future spot prices, particularly when energy markets are affected by major disruptions and elevated uncertainty. In such circumstances, futures curves reflect not only expectations regarding future demand and supply but also changing risk premia, liquidity conditions and hedging requirements. Given the unusually high degree of uncertainty regarding the future path of energy commodity prices—and the narrowing window for a rapid normalisation of supply conditions—the baseline projections are complemented by a model-based analysis
Assessing the economic impact of a more severe and long-lasting disruption to energy supply. In such less favourable scenario, energy commodity prices are assumed to rise significantly above futures curves, peaking in late 2026 before gradually realigning with them by the end of 2027. Global growth and economic sentiment would be hit harder—further dampening the baseline’s projected easing of inflation and wiping out the rebound in real GDP projected for 2027.
While the current shock differs in many respects from the 2022 energy crisis, it is expected to transmit through the economy along similar channels. Inflation data for March and April 2026 already point to a strong surge in energy prices. Energy inflation in the EU is expected to peak above 11% in the second quarter of 2026 and remain above 10% for the rest of the year, before declining in early 2027, and turning negative from the second quarter onwards. Price pressures are set to broaden progressively, as rising energy costs feed through the production chain and are partially passed through to consumers. Agriculture, distribution, and transport services are set to be hit first. Unprocessed food inflation is expected to increase quickly before easing in 2027. The progressive spread of input and transport cost increases is likely to push up prices across all inflation components, including the non-energy intensive services. This upward pressure will be reinforced by stronger-than-previously-expected wage pressures, as workers seek to preserve purchasing power. Inflation in Central and Eastern Europe is expected to remain higher, reflecting both the region’s greater share of energy in consumption baskets and more dynamic nominal wage growth.
In response to higher inflation, the ECB and most other EU central banks are expected to tighten their monetary policy stance or, at a minimum, delay previously anticipated easing measures. Long-term interest rates have risen, and risk premia have widened, as reflected in higher spreads on some sovereign bonds. The latest bank lending survey points to tightening credit standards in the first quarter of the year, particularly for firms. At the same time, credit demand from firms and consumers has weakened, with demand for mortgages stalling. At the cut-off date of this publication, EU equity indices had recouped most of the losses recorded following the outbreak of the Middle East conflict. However, the recovery has been driven by a limited number of sectors—particularly energy and defence—while most consumer-facing firms continue to underperform. This pattern is even more pronounced in the US, where just a handful of advanced technology firms are driving a strong market rally.
Higher financing costs and weaker profits weigh on firms’ capacity to finance investment, while elevated uncertainty prompts many to postpone or scale back investment plans. Despite a strong carryover from 2025, gross fixed capital formation is now expected to grow by only 2.2% in 2026 and 2.0% in 2027—a marked deceleration from the 2.8% increase in 2025, and a downward revision compared to the Autumn 2025 Forecast (–0.5 pps. in both years). The impact is uneven across asset classes. Equipment investment is set to be hit harder, while construction is expected to prove more resilient in the near term. Housing investment typically adjusts with a lag to higher interest rates and non-residential construction continues to be supported by RRF in 2026. Other investment—including software and R&D—is expected to remain relatively resilient, expanding at around 2%.
Employment expanded by 0.5% in 2025, bringing the total number of jobs created since 2019 to around ten million. Employment growth was largely driven by rising labour market participation. However, labour market conditions had already begun to soften before the outbreak of the conflict in the Middle East (see Box I.5.1).
With employment growth now projected to slow to 0.3% in 2026 and 0.4% in 2027, the unemployment rate is expected to stabilise at around 6%. Nominal wages are set to decelerate less than previously expected in 2026, and remain sustained, growing by around 3.5% in 2027, as they adjust with a lag to higher inflation.
Productivity growth is expected to slow to 0.7% in 2026, as firms retain labour in a context of uncertain demand prospects, before recovering to 1% in 2027.
Labour income over the forecast horizon is only mildly affected in nominal terms, as stronger wage growth broadly offsets weaker employment expansion. However, the upward revision to the inflation forecast reduces growth of households’ real disposable income by 1.4 pps. over the forecast horizon. Moreover, the previous inflation episode had shown that consumers are highly sensitive to price developments, with the pre-war disinflation failing to fully translate into lower perceived inflation by the time the conflict broke out. March and April survey data show that consumer confidence has deteriorated markedly, alongside a sharp increase in their inflation expectations. As a result, precautionary saving motives and the desire to protect the real value of financial buffers are expected to lead to a small increase in the saving rate in 2026. Against this backdrop, private consumption growth is projected to decelerate to 1.1% in 2026, before picking up to 1.3% in 2027—representing downward revisions of 0.4 pps. and 0.2 pps., respectively, compared with the Autumn 2025 Forecast.
A strong starting position and early-year momentum—supported by AI-related investment and easing of trade restrictions, including lower US tariffs—underpin the global trade outlook in the short term. However, these favourable global dynamics are not expected to translate into proportional gains for EU firms, as much of the expansion in global trade remains concentrated among Asian economies. This divergence is closely linked to the weakening investment outlook within the EU, compounded by more structural factors. First, the EU’s limited presence in fast-growing, trade-intensive AI-related sectors and, second, a gradual loss of competitiveness in key products and geographic markets. Moreover, survey evidence confirms that EU firms are affected by the increasingly challenging external environment, with some responding by scaling back their presence in export markets or adjusting prices (see Box I.4.1). As a result, EU exports are expected to grow by only 0.9% in 2026, before accelerating to 2.1% in 2027. The significant downgrade with respect to autumn is largely due to weaker goods exports, while services remain resilient. Import growth is also revised down to 1.7% in 2026, less markedly than exports, as weaker domestic demand is partially offset by the stronger euro—a development that amplifies competitive pressures from trading partners, particularly China. As a result, trade is expected to detract around 0.4 pps. from domestic growth this year—slightly more than projected in autumn.
Negative terms of trade for goods, combined with market share losses, lead to a deterioration in the trade balance, with only a partial offset from the services sector. The merchandise balance is expected to decline to 1.2% of GDP in 2026 and 1.1% in 2027. Services remain more resilient, with the balance reaching around 2% of GDP. Overall, the current account surplus is projected to fall from 2.4% of GDP in 2025 to 1.7% in 2026 and 1.6% in 2027.
The EU aggregate general government deficit is projected to gradually widen over the forecast horizon, rising from 3.1% of GDP in 2025 to 3.6% in 2027. This deterioration reflects a combination of subdued economic activity, higher interest expenditure, rising defence spending and new fiscal measures that aim to shield consumers and firms from high energy prices (see Box I.9.1).
Meanwhile, public investment remains broadly stable at elevated levels. The EU debt-to-GDP ratio is also set to rise, from 82.8% of GDP at end-2025 to 85.3% at end-2027, driven mainly by higher primary deficits and an increasingly unfavourable interest-growth differential. Overall, fiscal policy is expected to be slightly expansionary in 2026—supported by the rising utilisation of EU funds as the RRF draws to a close—before turning broadly neutral in 2027.
Risks to the outlook are primarily linked to the evolution of the conflict in the Middle East and its implications for global energy markets. As shown in the scenario analysis, a prolonged conflict and more gradual supply normalisation than implied by futures markets would lead to stronger inflationary pressures and weaker growth. Moreover, a renewed period of high prices could lead households and firms to adjust consumption and investment more sharply, including through cutbacks in energy-intensive activities. Finally, while the risk of overall energy shortages appears contained, critical vulnerabilities remain for specific inputs. The Gulf region remains critically important in the production and supply of refined fuels, which are critical for transport and heating. Disruptions to the supply of helium and fertilisers could also generate knock-on effects across global production chains, including in the strategically important semiconductor industry, while weighing on food affordability.
Beyond the conflict, the outlook remains exposed to geopolitical, technological and climate-related risks. Continued uncertainty surrounding trade policies by main global players and the ensuing trade diversions, as well as the ongoing reconfiguration of geopolitical and trade relationships could disrupt crucial value chains, weighing on industrial production and employment. By contrast, a just and lasting resolution of Russia’s war of aggression against Ukraine would constitute a clear net positive for the EU and globally. Importantly, the recent softening of labour demand—evidenced by declining job vacancies and hiring rates—may prove a prelude to a sharper downturn in employment growth. The erosion of purchasing power by persistent high inflation could also put strain on social cohesion.
Climate-related shocks could further disrupt economic activity and put more pressure on food prices. Artificial intelligence represents both an upside opportunity and a source of disruption: productivity gains could support investment and growth, but job displacement could weigh on confidence (see Special Issue 2) and demand, and a significant correction of AI-related equity valuations in the US could reverberate in global financial markets.
Domestically, faster implementation of structural reforms addressing long-standing bottlenecks to EU competitiveness and growth remains the main upside risk to the outlook. Resolute progress in energy transition would further boost resilience.

Click here to access the full European Economic Forecast, Spring 2026
 
 
Compliments of the European Commission The post European Commission | Spring 2026 Economic Forecast: Slowdown in Growth as Energy Shock Drives Up Inflation first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Blog | The economic shock caused by the war between the United States and Iran has quickly fed into euro area firms’ expectations. Daily responses to an ECB survey show an immediate increase in expected input costs, selling prices and short-term inflation.
Firms’ expectations for costs, prices and the broader macroeconomic environment are central to their decisions on wages, investment and employment. These decisions, in turn, determine how economic shocks are transmitted to the economy. When a major geopolitical event occurs, a key question for central banks is how quickly and how persistently the shock will feed into firms’ expectations. For monetary policy, it is essential to understand whether the adjustment to the shock is a short-lived supply disruption or a longer-lasting change that might lead to medium-term inflationary pressures.
The latest round of the ECB’s Survey on the Access to Finance of Enterprises (SAFE), offers a rare opportunity to study exactly this question. The survey for the first quarter of 2026, carried out between 19 February and 1 April, spans the period including the outbreak of the war in the Middle East on 28 February. What makes the survey results particularly interesting is the fact that the interviews with firms were carried out in different weeks throughout this period. This makes it possible to compare the answers of firms interviewed before and after the start of the conflict. Thereby, it provides evidence for the way the geopolitical shock has been transmitted to firms’ expectations.[1] Most strikingly, the results indicate an immediate increase in expected input costs, selling prices and short-term inflation.
Impact on costs and selling prices one year ahead
Chart 1 provides a first glimpse of the impact of the war on euro area firms’ expectations for costs and selling prices over the next 12 months. It displays weekly averages of SAFE responses collected before and after 28 February 2026, and points to a clear shift in sentiment. In the two weeks prior to the outbreak of the war, firms expected their selling prices and non-labour input costs to increase on average by 3.0% and 3.9% respectively. These figures were broadly in line with those in the previous survey round (2.9% and 3.6%).[2] This suggests that without the war, expectations would likely have remained on a similar, stable path.
Chart 1
Expectations for selling prices, wages and input costs one year ahead, before and after the outbreak of the war in the Middle East

(percentage changes over the next 12 months)

Sources: Survey on the Access to Finance of Enterprises and authors’ calculations.
Notes: The chart shows average expectations of firms over the following 12 months, before and after the outbreak of the war in the Middle East. The survey results are aggregated on a weekly basis.

Following the outbreak of the war, however, both cost and price expectations rose markedly. For firms surveyed after 28 February, weekly averages climbed progressively, reaching a peak of 4.1% for the expected change in selling prices and 7.7% for input costs in the final weeks of the collection period. This pattern mirrors the sharp and sizeable rise in energy prices at that time and the intensification of the conflict. Wage cost expectations, by contrast, moved modestly in the opposite direction, declining from 3.0% before the outbreak to 2.8% afterwards.
The rise in input cost expectations was not the same in all sectors. Firms operating in industries that rely more on fossil energy anticipated the sharpest cost increases over the next 12 months. The largest increases were expected by construction and transportation, both with high fossil fuel consumption (Chart 2). This pattern suggests that revised expectations were closely linked to firms’ exposure to energy price fluctuations triggered by the war. It also raises the possibility that firms in energy-intensive industries may have made bigger adjustments to their expectations not only for costs but also for business activity and financing conditions – a result we explore in more detail later in the post.

Chart 2
The relationship between input cost expectations and fossil energy consumption

(x-axis: percentage of fossil energy in total energy consumption, y-axis: percentage change in input costs over the next 12 months)

Sources: Survey on the Access of Finance of Enterprises, Moody’s Orbis database, Eurostat industry energy consumption statistics and authors’ calculations.
Notes: The chart shows survey-weighted average expectations of euro area firms for changes in input costs over the next 12 months, aggregated at the NACE 2-digit sector level. The sample includes only sectors with at least 100 firms that can be matched to the Orbis database. The horizontal axis shows the share of fossil energy in total energy consumption by sector, based on Eurostat industry energy consumption statistics.

Impact on inflation expectations
The war has also left a mark on the way euro area firms perceive the short-term inflation outlook. Chart 3 offers a straightforward way to read the impact of the war on inflation expectations for one, three and five years ahead. It compares the median inflation expectation reported by firms surveyed in the two weeks before the attack on 28 February with the median reported after that date. If the war had had no effect on inflation expectations, one would expect the two lines to overlap across the three horizons. Instead, the chart reveals a more nuanced picture. It shows a clear upward shift at the one-year horizon, while expectations for three and five years ahead are broadly unchanged. This indicates that firms currently see the impact on inflation as temporary.
The survey results bear this out. Firms interviewed before the outbreak of the war reported a median one-year ahead inflation expectation of 2.5%, almost unchanged from the previous survey round. Among firms surveyed after 28 February, this figure rose to 3.0%. This suggests that the war and the associated rise in energy prices and supply disruptions had prompted a substantial upward revision to short-term inflation expectations. Three-year and five-year ahead median inflation expectations, by contrast, were similar across the two groups. This indicates that firms did not, at this stage, expect the inflationary impulse to persist over the medium to longer term.

Chart 3
Firms’ inflation expectations before and after the outbreak of the war in the Middle East at different horizons

(annual percentages)

Notes: The chart shows survey-weighted median expectations for euro area inflation in one year, three years and five years’ time. “before the war outbreak” refers to SAFE survey data from the Q1 2026 round collected between 19 February and 27 February 2026, and “after the war outbreak” refers to Q1 survey data collected between 28 February and 1 April 2026.

Impact on expectations for near-term business activity and bank loan availability
The impact of the war has not been confined to firms’ cost and price expectations. It has also dampened their short-term expectations for business activity and access to finance. Chart 4 compares the net percentages of firms expecting turnover, investment and bank loan availability to improve over the next three and six months between those surveyed before and after the outbreak of the war. Across all three indicators, firms interviewed after 28 February reported a noticeably more pessimistic outlook than those surveyed beforehand, consistent with the broader uncertainty brought by the conflict.

Chart 4
Firms’ expectations for business activity and bank loan availability over the next three and six months

(net percentages of respondents)

Notes: The chart shows survey-weighted net percentages of euro area firms’ expectations for changes over the next six months (bars) and over the next three months (diamonds), before and after the outbreak of the war in the Middle East. “Before the war outbreak” refers to SAFE survey data from the Q1 2026 round collected between 19 February and 27 February 2026, and “after the war outbreak” refers to Q1 survey data collected between 28 February and 1 April 2026. Net percentages are the difference between the percentage of enterprises reporting an increase for a given factor and the percentage reporting a decrease.

The shift in firms’ expectations for credit conditions is particularly striking. Firms surveyed before the war anticipated, on balance, an improvement in bank loan availability over the coming six months, with a net 6% expecting conditions to ease. Among firms surveyed after the outbreak, sentiment had reversed, with a net 6% expecting the availability of bank loans to decrease. This reversal underscores the potential for geopolitical instability to make lenders more risk-averse. Unless the conflict is resolved quickly, it signals a challenging environment for firms seeking external financing in the near future. The chart also highlights differences between shorter-term (three-month) and medium-term (six-month) expectations. While firms reported a more pessimistic outlook for turnover and bank loan availability across both reference periods after the outbreak of the war, their investment plans deteriorated only at the six-month horizon. Expectations for three months ahead were broadly unchanged. Taken together, these findings suggest that the conflict has led firms to reassess their near-term business outlook, while adjustments to investment plans have so far remained more limited and concentrated at longer horizons.
Energy-intensive firms become more pessimistic
The aggregate deterioration in firms’ expectations masks substantial differences across sectors. Chart 5 shows that the worsening of sentiment following the outbreak of the war was driven by firms in energy-intensive sectors, although the size of the change differs across expectation measures.

Chart 5
Change in expectations for employment, turnover, investment and bank loan availability by firms’ energy intensity

(percentage marginal probability of an increase in expectations)

Sources: Survey on the Access to Finance of Enterprises, Moody’s Orbis database, Eurostat industry energy consumption statistics and authors’ calculations.
Notes: The chart shows the marginal effect of the coefficients from an ordered probit model for the outcome “increase” in expectations for employment, turnover, investment and bank loan availability. The coefficient measures the difference between the firms surveyed before and after the war in the Middle East, multiplied by a dummy for high-energy intensity sectors (energy consumption divided by gross value added above the median across countries and NACE 2-digit sectors). The regressions use survey weights and combine in the sample firms interviewed about their one-quarter and two-quarter ahead expectations. Expectations for employment are over the next 12 months.

For employment and turnover expectations, the adjustment among energy-intensive firms is statistically significant, particularly for turnover. By contrast, there is no significant effect on investment expectations over the next three to six months.[3] This suggests that energy-intensive firms have a less optimistic outlook for revenues as a result of the conflict and the associated rise in energy costs, but they have barely adjusted their investment plans for the time being. This may reflect the longer-term nature of investment decisions, as firms typically revise their plans only when a shock is perceived to be persistent. Overall, the concentration of the adjustment among energy-intensive firms provides additional indication that the geopolitical shock has mainly operated through the energy price channel.
Finally, the deterioration in sentiment has also extended to financing conditions. Energy-intensive firms became significantly more pessimistic about bank loan availability after the US-led attack on Iran. This suggests that rising energy costs and weaker expected profitability translated into concerns about future access to external financing, potentially reflecting a tighter supply of bank credit for firms facing cash flow constraints. This result points to a potential amplification mechanism, whereby energy price shocks not only weaken firms’ activity outlook directly but also by tightening expected financing conditions.
Conclusion
The pattern emerging across all four expectation dimensions collected in the survey – input and wage costs, selling prices, inflation expectations and business activity – bears the hallmarks of a supply-driven shock. Firms have revised up their short-term cost, price and inflation expectations while simultaneously marking down their near-term outlook for turnover, employment, investment and access to finance. Importantly, the deterioration in sentiment has been concentrated among firms operating in energy-intensive sectors. This highlights the central role of the energy price channel in the transmission of the shock. At the same time, the stability of wage expectations and longer-term inflation expectations suggests that, so far, firms do not anticipate the shock becoming persistent.
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.
 
 
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The Council decided today to suspend for one year customs tariffs on key nitrogen-based fertilisers used in agricultural production in the EU, including fertiliser inputs such as urea and ammonia.
The measure aims to lower costs for EU farmers and fertiliser industry – saving them an estimated €60 million in import duties, according to the European Commission. It will also reduce the EU’s dependency on Russia and Belarus for fertiliser products and help build a more diversified trading network in this area.
“Today’s decision gives European farmers better access to affordable, reliable fertiliser supplies – good news for the agriculture sector and EU consumers alike. At the same time, we are accelerating away from Russian and Belarusian products and building more resilient supply chains and partnerships globally.” – Makis Keravnos, Minister of Finance of the Republic of Cyprus
In practice, the suspension will apply only to products not already imported into the EU duty-free from countries that have preferential access under most favoured nation (MFN) tariffs. However, to balance the interests of EU producers, the measure is limited to a quota of goods equal to the volume of MFN imports in 2024 plus 20% of the volumes imported from Russia and Belarus in the same year.
In practice, the suspension will apply only to products not already imported into the EU duty-free from countries that have preferential access under most favoured nation (MFN) tariffs. However, to balance the interests of EU producers, the measure is limited to a quota of goods equal to the volume of MFN imports in 2024 plus 20% of the volumes imported from Russia and Belarus in the same year.
The EU has decided that the suspension will not apply to products imported from Russia due to its unprovoked and unjustified war of aggression against Ukraine. Nor will it apply to products imported from Belarus given its support for Russia, and its disregard for international law, fundamental freedoms and human rights.
Next steps 
The measure will enter into force the day after its publication in the EU’s official journal and will apply until one year later. The Commission is expected to monitor the fertiliser market and, if necessary, propose the extension or the modification of the suspension.
Background
Fertilisers are essential for European farmers who need a secure and regular trade flow at competitive prices to guarantee agricultural production and food security. Prices of those products have increased substantially since 2021, in turn increasing the price of food and putting the agricultural production under pressure.
In 2024, the EU imported 2 million tonnes of ammonia and 5.9 million tonnes of urea, notably to produce nitrogen fertilisers. In addition, the Union imported 6.7 million tonnes of nitrogen-based fertilisers and mixtures containing nitrogen.
The EU already imports a significant portion of nitrogen-based fertilisers duty-free from countries benefitting from preferential access to the Union market. Despite this, the Union still imports a large volume of these goods originating in countries subject to the common customs tariff, with customs duty rates currently ranging between 5.5% and 6.5%.
 
 
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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 growthis 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.
 
 
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Corrigendum: In the OECD GDP release published on 21 May 2026, the quarter-on-quarter growth for Italy in the first quarter of 2026 is 0.2%, and not 0.1% as initially published in the last sentence of the second paragraph.
GDP (Gross Domestic Product) growth in the OECD area increased slightly to 0.4% in Q1 2026, up from 0.2% in the previous quarter, according to provisional estimates (Figure 1). This reflects a mixed picture across the 28 OECD countries for which data was available. In Q1 2026, twenty countries recorded growth, but at varying rates, while two saw no change in GDP and six experienced a contraction.
Looking at G7 countries, growth accelerated in the United Kingdom and the United States, from 0.2% and 0.1% in Q4 to 0.6% and 0.5% in Q1, respectively. The acceleration in the United Kingdom mainly reflected increases in private and government consumption, while in the United States, rebounds in government consumption and exports as well as increased investment supported economic growth. Growth also increased in Japan, from 0.2% in Q4 to 0.5% in Q1, and more marginally in Germany, from 0.2% to 0.3%. In Canada, growth rebounded to 0.4% after a contraction of 0.2% in the previous quarter. By contrast, France recorded no growth in Q1 after expanding by 0.2% in the previous quarter, as decreases in private consumption, investment and exports weighed on economic activity. Growth slowed in Italy from 0.3% in Q4 to 0.2% in Q1 as domestic demand1 decreased.
Among other OECD countries for which data was available, Korea recorded the highest quarter-on-quarter growth rate in Q1 (1.7%), followed by Finland (0.9%) and Hungary and Switzerland (0.8% in both countries). In contrast, Ireland continued to show the largest contraction (-2.0%), followed by Israel and Mexico (-0.8% in both countries).
Year-on-year, OECD GDP growth increased slightly in Q1 compared with Q4, from 1.7% to 1.8% (Table 2). Among G7 economies, the United States recorded the highest annual increase (2.7%), while Germany recorded the lowest (0.3%).
Click here to see the interactive chart.
 
Note:

Domestic demand covers private and government consumption and investment.

 
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Blog | Governments can protect vulnerable households, keep businesses open, and preserve price signals without straining public finances.
When global energy prices spike, governments face an unenviable dilemma: shield people and businesses while straining already reduced room in public budgets—or let prices rise for everyone and risk social and political backlash. So, how can policymakers do the best of both?
To be sure, there is no one-size-fits-all response because the impact of the war in the Middle East differs widely across countries, reflecting varied energy dependence, market structures, social protection policies, and fiscal space. Likewise, some countries are more affected than others by the high uncertainty about how long the shock will last and how much it will fuel inflation.
Sustained energy price surges can sharply reduce household purchasing power, which hurts poorer families most and strains businesses. If unaddressed, this can cause lasting damage by pushing more people into poverty and forcing businesses to shut down.
Many countries are already responding, but the challenge is doing so efficiently and without further hurting economies. Measures not designed thoughtfully can be fiscally costly and difficult to unwind. They can also fuel additional inflation, worsen fiscal fragilities, or increase further global energy prices.
To do so, it is important to keep in mind a common set of principles. The energy crisis is a standard negative supply shock—pushing prices up, weighing on activity and putting central banks in a tough spot. Fiscal measures have a role to play, but they need to be temporary, targeted, timely, and tailored. Specifically, they should:

Let domestic energy prices reflect international costs.
Shield vulnerable households with targeted, temporary support.
Support viable small businesses with liquidity, not price controls.
Reserve generalized subsidies and price caps for truly exceptional shocks.

These priorities were outlined in our April 2026 World Economic Outlook and Fiscal Monitor reports, in which we also emphasized the uneven impact within countries.

Persistence and prices
One of the most important questions is how long the shock lasts. If it’s within historical ranges, even if large, governments should let domestic prices adjust to international market conditions. Fiscal policy should rely mainly on automatic stabilizers, with revenue taking a hit as activity declines, while expenditures meet increased need for existing social assistance. For economies that rely on imported energy, higher import prices imply a drop in real income (by as much as 2 to 3 percent of gross domestic product over a short period under the current shock). This must be absorbed through lower domestic demand.
When price shocks are unusually large or disruptive, but likely to be temporary, governments may have a case for more active fiscal policy—only if they can afford it. Even then, most of the price increases should be passed through upfront, with any intervention aimed at smoothing the adjustment rather than preventing it.
Price signals play a major role in allocating scarce resources, encouraging efficient use, and preventing shortages. At the same time, higher energy prices can immediately have severe effects, and these are felt differently by individuals and businesses. That means the goals of fiscal support, and the tools to deliver it, should reflect this distinction.

Protecting people
Poorer families typically spend two or three times as much of their income on energy and food compared with wealthier households, while they don’t have as much in savings. Protecting them is important to preserving social cohesion and avoiding a surge in poverty.
Targeted cash transfers, ideally delivered through existing social assistance systems, are generally the best way to do so because they preserve price signals and limit fiscal costs. If coverage is insufficient, governments can temporarily top up payments or widen eligibility, including to lower‑ and middle‑income households that are at risk of falling into poverty.
For very large but temporary shocks, additional measures may include one‑time rebates or spreading price increases over time, helping households cope without freezing prices outright. As a last resort, if food security is at risk and safety nets aren’t sufficient, temporary reductions in taxes or subsidies for stable foods may be appropriate if accompanied by a clear and credible timeline for ending them.
Supporting businesses
For firms, support serves a different aim: keeping viable enterprises operating and avoiding unnecessary bankruptcies. It should address short‑term cash‑flow problems, not deeper viability issues, and be focused on otherwise sound or strategically important businesses, especially in industries where higher costs quickly raise consumer prices.
Temporary liquidity support—such as government‑guaranteed loans, credit lines, or short‑term tax and social security deferrals—should be the first line of response. That’s because these tools are fiscally less costly and easier to undo. Direct grants or equity injections are best avoided, given their high fiscal cost and political difficulty to reverse.
Exceptional use
Some policy tools are broader and more distortionary. Energy-tax cuts, price caps, or general subsidies mute the important signals from prices, usually benefit higher‑income households more, and are hard to phase out. They can also quickly escalate government budget costs and raise the risk of shortages, especially if suppliers are not adequately compensated.
Broad measures to address rising prices may be justified if a group of specific conditions hold simultaneously:

The price shock is clearly temporary.
Higher energy prices are quickly feeding into broader inflation.
Inflation expectations are at risk of becoming uncontrolled.
Economic overheating is limited.
Public finances have room to absorb the cost.

These conditions are hard to gauge in real time and, in any case, broad price controls have major spillovers. That’s why use of broad price tools should ideally be avoided, and if used, should be exceptional, temporary, transparent, and tightly circumscribed. Governments must weigh trade‑offs carefully. For example, price caps are easier to phase out but can drive shortages. Tax cuts pose fewer supply risks but are harder to stop and may cause persistent revenue losses. As a rule, full price freezes should be avoided.
Fiscal constraints
Fiscal space varies widely across countries and is now generally tighter than in past crises because of higher debt and borrowing costs. This strengthens the case for incremental and carefully calibrated responses. In countries where fiscal space is available, governments may have some scope to smooth severe but temporary price increases with targeted, transparent, and temporary measures.
Countries with limited fiscal space and weak social safety nets are more constrained. Extreme situations in which price increases threaten food or energy access may warrant rationing to manage demand, but this has very high economic costs. This underscores why it’s important to avoid generalized subsidies that quickly exhaust scarce fiscal resources.
Sharper tradeoffs
Even with improved policy frameworks, policy trade‑offs are often sharper in emerging market and developing economies. Compared with advanced economies, they typically have weaker social safety nets, larger shares of consumer spending on food and energy, tighter liquidity constraints, more fragile inflation expectations, and narrower fiscal space amid higher borrowing costs. Political pressure can also spur governments to act quickly when facing extraordinary shocks.
By contrast, advanced economies are less constrained. As a result, they should mainly use existing targeted transfers and automatic stabilizers, resorting to discretionary and price‑based measures only in exceptional cases.
This asymmetry matters globally. When larger or richer countries suppress domestic price signals, global demand rises, international prices increase, and shortages worsen—hurting poorer importing countries the most.
Policy sequence
The key question is not whether to act, but how to act effectively: assessing shock persistence, matching tools and objectives, distinguishing household and firm support, and tailoring responses to circumstances.
A disciplined, well‑sequenced approach—starting with targeted, temporary measures and escalating if needed—can help economies adjust to energy and food price shocks without costly policy mistakes, domestically and globally.

 
 
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Today, the Council presidency and the European Parliament reached a provisional agreement on two regulations aimed at implementing the tariff-related aspects of the EU-US Joint Statement, agreed on 21 August 2025.
The agreement marks an important step in delivering on the commitments undertaken in the EU-US Joint Statement. It aims at enhancing a stable and predictable transatlantic trade relationship, while ensuring robust safeguards and preserving flexibility to be able to protect the EU’s economic interests, if needed.
The Joint Statement is expected to serve as a platform to continue engaging with the US to lower tariffs and cooperate closely on shared challenges.
” The EU and the United States share the world’s largest and most integrated economic relationship. Maintaining a stable, predictable and balanced transatlantic partnership is in the interest of both sides. Today, the European Union delivers on its commitments. We are and will remain a trusted and reliable partner in global trade. We have ensured in our agreement robust safeguards to be able to protect European interests, businesses and workers.”- Michael Damianos, Minister of energy, commerce and industry of the Republic of Cyprus
The first (main) regulation eliminates remaining customs duties on US industrial goods and grants preferential market access including via tariff rate quotas (TRQs) and reduced tariffs for certain US seafood and non-sensitive agricultural products. The second regulation focuses on extending the duty suspension for imports of lobster, including processed lobster.
Main elements of the agreement
To ensure the effective implementation of the Joint Statement and protect the EU’s interests, the co-legislators agreed to strengthen the main regulation by setting up a robust safeguard mechanism, reinforcing the suspension clause provisions and introducing a sunset clause, among others. Some elements were mirrored in the second regulation concerning the imports of lobster.
Robust safeguard mechanism
The agreement includes a dedicated safeguard mechanism, which gives the EU the means to address possible significant increases in imports from the US that cause or threaten to cause serious injury to domestic producers.
In particular, following a duly substantiated request from three or more member states, from the EU industry or trade unions, or upon its own initiative, the Commission will launch an examination to assess whether the increased imports have caused or threaten to cause serious injury to EU producers. Where there is sufficient evidence, the Commission may decide to suspend in whole or in part the application of the regulation.
Reinforced suspension provisions
Furthermore, the agreement reinforces the conditions under which the Commission is empowered to suspend in whole or in part the application of the regulation, via an implementing act. This may happen where the United States fails to meet the commitments of the Joint Statement, where the United States otherwise undermines the objectives pursued by the Joint Statement or disrupts the trade and investment relations with the EU, including by discriminating against or targeting EU economic operators. The suspension mechanism may also be triggered where there are sufficient indications that such actions may occur in the future.
Furthermore, the Commission is empowered to suspend concessions concerning steel and aluminium products to the US if by 31 December 2026 the US continues to apply a tariff rate higher than 15% on steel and aluminium derivative products imported from the EU.
Time-limited application
The co-legislators agreed to introduce a sunset clause, under which the regulation will cease to apply at the end of 2029 unless further action is taken.
Monitoring the impact of the measures
The agreement provides for regular monitoring of the economic effects of the trade liberalisation measures on the EU’s economy. Six months after the regulation enters into force, and every three months thereafter, the Commission will have to inform the co-legislators of changes in trade volumes and values of US exports to the EU of the goods covered by the regulation(s).
Six months before the end date of application of the regulation, the Commission will present a comprehensive assessment examining, among other things, the impact of the regulation on the EU-US trade flows, on trade patterns, on tariff revenue, and, more specifically, the impact on SMEs. Where appropriate, this assessment will be accompanied by a legislative proposal to extend the application of the regulation.
Next steps
Once the texts have been finalised at technical level, the provisional agreement on both regulations will have to be endorsed and formally adopted by both institutions before being published in the Official Journal. The regulations will enter into force on the day following their publication. The second regulation concerning lobster imports will apply retroactively from 1 August 2025.
Background
The European Union and the United States have the largest bilateral trade and investment relationship and the most integrated economic relationship in the world, representing almost 30% of global trade in goods and services and 43% of global GDP. EU-US trade in goods and services has doubled over the last decade, amounting to around €1.7 trillion in 2024. This deep and comprehensive partnership is underpinned by mutual investment: in 2023, EU and US firms held over €4.7 trillion in investments in each other’s markets.
Proposed by the European Commission on 28 August 2025, the two regulations will enact the EU’s tariff reductions set forth in paragraph 1 of the EU-US Joint Statement of 21 August 2025.
 
 
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