BNP Paribas projects Eurozone growth at 1.6% in 2026, supported by German fiscal measures, higher military and AI-related investment, and a resilient labour market. Inflation is expected to stay below 2% in 2026 before gradually accelerating in 2027. This would prompt the ECB to raise the deposit facility rate to 2.5% in the second half of 2027.

Growth support sets stage for ECB

"After holding up well in 2025 (1.5%), growth is expected to strengthen in 2026 (+1.6%)."

"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."

"Inflation is expected to remain below the 2% target in 2026."

"Stronger economic activity will lead to a progressive acceleration in inflation in 2027, albeit a moderate one."

"This would lead the ECB to increase the policy rate in H2 2027, bringing the deposit facility rate to 2.5%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)