BNP Paribas expects Eurozone Gross Domestic Product (GDP) growth to edge up to 1.6% in 2026 from 1.5% in 2025, supported by German fiscal measures, higher military spending and AI-related investment. However, an energy shock linked to Middle East developments leads the bank to project three European Central Bank (ECB) rate hikes in 2026, taking the deposit rate to 2.75% and raising uncertainty around the outlook.
Energy shock drives ECB rate hikes
“After holding up well in 2025 (1.5%), growth is expected to strengthen in 2026 (+1.6%).”
“It is expected to grow at a stable quarterly rate of 0.5% over the year.”
“The roll-out of fiscal measures in Germany and the planned increase in military spending and AI-related investment in Europe, against a backdrop of labour market resilience, underpin this scenario.”
“This momentum will nevertheless be undermined by the energy shock linked to developments in the Middle East, which leads us to revise our monetary policy scenario for 2026: the ECB would implement three successive rate hikes (June, July, September), bringing the deposit rate to 2.75%.”
“In this context, this tightening would increase uncertainty regarding our growth outlook, without invalidating it at this stage.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/ecb-firmer-growth-and-renewed-tightening-bnp-paribas-202604201346
