The assessment of the July data is positive and reinforces the encouraging signals from May and June data. According to PMI business climate surveys, price pressures continued to ease, as did supply tensions through slightly shorter delivery times. The business climate in the manufacturing sector resumed improving, almost erasing the two months of previous decline. The business climate in the services sector and consumer confidence continues to recover. The July surveys are not impacted by the resurgence of tensions in the Middle East and by the ensuing rise in energy prices, partly because responses were, for the most part, collected beforehand. A relapse in August is highly likely if the geopolitical situation remains degraded
In advanced economies, June inflation declined temporarily but bounced back in July, reflecting the moves in energy prices. Forward indicators of price pressures eased again in July. Long-term inflation expectations held steady as near-term expectations pulled back (UK excepted). At this stage, there is no sign of a wage-price spiral. In emerging economies, average CPI inflation fell back slightly in June after three months of increase. As for commodities, we see a broad-based rebound as tensions resurface.
The Recovery and Resilience Facility, or the so-called RRF, has been drawing heightened attention lately as two deadlines are looming: August 2026 for reform milestones and December 2026 to secure all disbursements. The stakes are high. Countries failing to fulfill the EU’s reform milestones risk losing entitled funds.
Both the Eurozone and the US grew 0.4% q/q in Q2 2026. For Europe, that is a welcome upside surprise: growth landed in line with expectations (France, Germany) or above them (Eurozone overall, Spain, Italy), even as the Middle East conflict delivered an energy-driven inflation shock. It confirms that European growth rests on foundations solid enough to absorb this kind of shock. Country-level detail was incomplete on the day, but manufacturing business sentiment held firm across the board in H1, underwritten by a set of drivers (AI, defence, electrification, aerospace). US growth, by contrast, undershot expectations. But it remained robust, powered by AI investment and accelerating household consumption. Both, however, drew in imports fast enough to weaken the headline growth figure.
In June 2026, corporate creations cumulated over one year remained dynamic, reaching a historic peak according to INSEE, with 1,233,123 corporates set up, representing a 11.1% year-on-year increase. This momentum is not a recent phenomenon, as corporate creations have doubled over the last decade. During this same period, the rise in bankruptcies has been ten times lower, which serves to put current levels (approximately 70,000 bankruptcies cumulated over one year in March 2026) into perspective. Historically, the peaks and troughs in corporate bankruptcies are following those of corporate creations, with an average lag of 24 to 36 months
Despite the energy shock, Poland’s economic growth is expected to remain robust and could even accelerate slightly in 2026. This growth is being driven by a recovery in investment, while consumption, although slowing, will continue to be one of its main pillars. Inflation remains moderate despite rising fuel prices and is expected to stay within the Central Bank’s target range. The external accounts, meanwhile, are very solid and can accommodate for the rise in energy costs. However, the trajectory of public debt is a cause for concern, particularly given that the government’s lack of a qualified majority is hampering fiscal consolidation.
Recent political tensions are once again drawing attention to Romania. The next government’s priority will be to further consolidate public finances; otherwise, the public debt-to-GDP ratio will continue to deteriorate. In addition, Romania appears to be the Central European country most adversely affected by the energy shock, although the situation is still manageable. Economic growth has been sluggish since 2024 and is not expected to improve in 2026. Inflation has now exceeded 10%, but it is expected to ease from September as the effects of the VAT rate hike subside. Monetary authorities are expected to adopt a cautious approach in the short term
When we compare the impact on economic activity of the current energy shock with that of 2022 (following the conflict in Ukraine), the favorable point in 2026, for the euro area, is the business climate in the manufacturing sector, which is holding up better than in 2022. Consumer confidence has fallen sharply but to a lesser extent in 2026 than in 2022. As for the deterioration in the business climate in the services sector, it was immediate in 2026, whereas it occurred with a few months' delay in 2022. The assessment of the June data is positive and reinforces the encouraging signals from May data.
The share of intra-EU exports in total European exports currently stands at around 62%, a level comparable to that seen in the early 2000s. Behind this apparent stability, however, lies a deep reshuffling of the major blocs that make up the European Union.
In the years following the pandemic, labour productivity in Italy has stalled. Artificial intelligence is identified as a potential catalyst for reversing this trend, with projections indicating possible annual productivity growth increases of up to 1.1 p.p. in a scenario of rapid adoption. However, the actual adoption of AI in Italy is still low, despite a faster growth rate compared with its main Euro area counterparts. As of 2025, only 16.4% of Italian companies with more than 10 employees were using AI. In the financial and insurance sectors, adoption rates are above average (39%, peaking at 70% in insurance)
In the European Union (EU), the post-Covid period was marked by a significant slowdown in productivity, which contrasts with the dynamic trend observed in the United States. However, there are reasons to put Europe's decline into perspective. Over a twenty-year period, real GDP per hour worked has grown more in the EU-27 than in Japan or the United Kingdom. The lag behind the United States is not continuous, but is linked to periods of crisis during which the US federal government intervened on a massive scale to support private-sector companies. The result is a public finance situation which appears much more favourable in Europe, allowing it to address a challenging future.
Over a year has passed since the German government announced substantial investment plans in defence and infrastructure. As we assess the situation in mid 2026, the implementation of these plans is progressing as we had anticipated. However, the current impact of these investments on growth is proving to be more subdued than expected (notably because a portion of the infrastructure funds has been used to finance government current expenditure). Nonetheless, the rebound in industrial orders is becoming evident, and the increase in intra European trade directed towards Germany indicates that a positive momentum is developing.
The assessment of the available data for May is rather positive. Granted, inflation keeps rising, but the contribution of the "energy" component remains dominant. Confidence enjoys a respite: business confidence in services and consumer confidence are sources of good news.
As expected, the European Central Bank raised its key interest rates by 25 basis points, bringing the deposit facility rate to 2.25%. This decision, taken unanimously, reflects the Governing Council's conviction that the persistence of the energy shock warrants a monetary policy response. The ECB revised its inflation outlook upward more significantly than its growth forecasts downward. It also updated its alternative scenarios relative to the central scenario (one more favorable, two adverse). Christine Lagarde emphasized that today's decision was "robust" across all scenarios.
Since the outbreak of the conflict in the Middle East on 28 February, energy markets have experienced increased volatility, with a marked rise in oil and gas prices. However, our analysis indicates that the impact on advanced economies is likely to be moderate, provided that the blockade of the Strait of Hormuz does not drag on. What mechanisms are at work and what risks have been identified?In this new episode, Lucie Barette and Marianne Mueller analyse the consequences of the current energy shock triggered by the conflict in the Middle East on advanced economies
Out of the spotlight, Europe is quietly preparing to emerge from its post-pandemic underwater years like a nymph turns into a stunning dragonfly. The turmoil of the last year and a half has brought about “Europe’s moment” in more ways than is being recognized. Europe isn’t just emerging as the alternative safe haven of choice. It can count on five powerful boosters: rebounding industrial strength, established services dominance, tech acceleration, a governance sea-change, and favorable geopolitical winds.
Despite the energy shock caused by the conflict in the Middle East and intensifying competition from China, Germany is set to accelerate its growth in 2026 and 2027, driven by massive investment efforts. Yet its reliance on traditional industries and high exposure to China pose structural challenges that will require heightened innovation efforts.
Advanced economies proved resilient in 2025 despite a tariff shock that disrupted global trade. By early 2026, they were on track for faster growth and lower inflation. A fresh shock linked to the war in the Middle East, however, is reigniting inflation while slowing growth. This mix primarily reflects the impact of a likely decline in purchasing power on consumer spending. However, many of the factors that underpinned 2025 growth — AI development, higher defense spending (especially in Europe), and continued trade growth — are set to persist in 2026. They would be reinforced by an acceleration of electrification, against a backdrop of rising oil prices and an AI-driven rise in electricity demand.
Energy transition, reindustrialisation, digital transition, innovation, defence: these strategic priorities require annual funding flows far greater than those historically seen in the European Union (EU). The consultation conducted by the European Commission on the competitiveness of the banking sector, which concluded on 19 April, highlights the need for a banking system that can finance these ambitions.
It’s a major trend, one that can be observed all over the world: since the early 1970s, the average number of children per woman, the ‘fertility rate’, has been falling almost continuously.
The Eurozone is experiencing rapid population ageing, which, at first glance, does not inspire much optimism regarding its growth prospects. However, the decline in its working-age population can be countered by effective migration policies (as seen in Italy and Spain), as well as by an increase in labour force participation rates. Furthermore, much will depend on a recovery in productivity, which experienced a sudden stop following the Covid-19 pandemic.
The assessment of the available data for April is more negative than in March. Inflation rose by 1.1 percentage points in two months, an increase that is however still solely driven by the "energy" component. Excluding energy as well as excluding “energy and food," inflation recorded a new slight decline in April. However inflationary pressures are mounting, through rising input prices and — new development in April — the beginning of an increase in output prices according to PMIs surveys.
China’s rise is undermining major sectors of European industry. However, as the German economy illustrates most clearly, Europe is shifting, driven by investment cycles in defence, electrification and artificial intelligence. It is redirecting its exports and managing to maintain strong positions, particularly in high value-added services, where exports to China are trending upwards. Yet this repositioning remains fragile and could be hampered by the economic costs of the conflict in the Middle East. To consolidate its positions, Europe must accelerate the unification of its internal market and do more to strengthen its industrial policy. This is the aim of the ‘One Europe, One Market’ agenda.
The energy shock is beginning to feed through into French inflation. In March and April, inflation was limited to refining activities and fuel prices. It is expected to affect more sectors in the second quarter, according to the European Commission’s survey on three-month selling price expectations. In France, the pass-through is expected to mainly affect intermediate goods in Q2. However, inflationary pressures on consumer goods and services or construction are expected to remain quite moderate. These factors are consistent with our scenario of a limited acceleration in French inflation and a moderate impact of the energy shock on growth.
The energy-led rise in inflation remains contained. But pressures are building and consumer and services confidence is suffering.
