During her hearing on 18 March 2026 before the Committee on Economic and Monetary Affairs of the European Parliament, Claudia Buch (Chair of the Supervisory Board of the European Central Bank) highlighted the absence of decline in the quality of bank assets and the stability of non-performing loan ratios. These ratios are a good indirect indicator of the financial health of borrowing corporations in the European Union (EU), particularly in the manufacturing sector. When viewed from this perspective, the proportion of firms in this sector facing severe financial difficulties appears to be lower at the start of 2026 than at the start of 2022. This suggests, by extension, that these firms are in better financial health and have a greater ability to absorb shocks
For several years, Central Europe has been facing a marked demographic decline. Its magnitude varies from one country to another. The total population decline from 2004 to 2025 ranges from -0.3% in Slovakia to -17.2% in Bulgaria. The Czech Republic is the only country in the region to have seen a population increase over the same period. The working-age population (ages 15–64) is also declining. However, the situation is less unfavourable in Hungary, Poland, the Czech Republic and Slovakia, while Romania and Bulgaria are experiencing a more significant decline due to migration patterns. Net migration flows were negative for Bulgaria until 2019 and for Romania until 2021. However, this trend has reversed in recent years
The conflict in Iran has put an end to the moderation in commodity prices, which had helped to reduce inflation in Europe. This disinflation enabled the ECB to lower its key interest rate, which contributed to the rebound in growth in 2025. The conflict could reverse these trends, with the extent of the reversal depending on the still highly uncertain outcome of the conflict in the coming weeks.
Market opportunities in China are shrinking dramatically due to the country's shift towards higher-end products and its import substitution policy. 2025 marked an unprecedented turning point in this regard: European exports to China fell by 14% in nominal terms and by 10.2% in volume, as the country's share of total EU exports (7.5%) reached its lowest level in nearly fifteen years.
All eyes are on the general elections on 12 April which will encapsulate the key issues facing Hungary. Regardless of the outcome of the election, Hungary’s economic growth is expected to recover in 2026 and 2027, driven by more favourable export and consumption prospects. One cloud on the horizon, however, is the continued uncertainty around the trajectory of investment, as it hinges on European funds being released. Inflation is expected to remain within its target range in the short term, paving the way for a cycle of moderate monetary easing. Artificial intelligence is a promising sector and will play an important role in the coming years.
Poland's economy is impressively dynamic. In 2025, the country posted the highest growth rate in Central Europe and one of the highest in the European Union. This growth pattern should, yet again, be observed in 2026. Inflation is projected to remain within its target range in 2026 and 2027. However, the cycle of monetary easing is coming to an end. Public finances have deteriorated, but the Polish government can still easily secure financing on the bond market, and sovereign risk remains limited. The artificial intelligence sector, while still in its infancy, is set to become a key driver of growth.
In 2025, US–China trade tensions led to a sharp drop in US imports from China, while Chinese exports to other regions increased, indicating early signs of trade diversion. For Italy, estimates point to limited but notable export displacement, concentrated in specific sectors, alongside potential gains from lower-cost Chinese intermediate and capital goods. Italian firms report stronger competitive pressures and heightened uncertainty, particularly among exporters. Despite the challenges posed by tariffs and the redirection of Chinese exports in 2025, Italian exports have proved resilient, with growth recorded especially towards the United States.
Following the announcement on 4 March 2025 of a joint plan to invest EUR 800 billion in defence within the European Union (EU) by 2030, Member States have been gearing up for action. One year on, the initial assessment is fairly positive. Promises are being kept and, according to our estimates, EU countries spent nearly EUR 400 billion in 2025, slightly more than expected. Germany, the countries of Northern Europe and those that spent the least (including Spain) have agreed to a significant increase in spending. They are therefore aligning with the countries of Central and Eastern Europe that had already implemented this effort (in particular Poland and the Baltic states). Investment represents a growing share of expenditure and R&D is increasing rapidly
According to the ECB's Bank Lending Survey (BLS), some banks in the Eurozone may tighten their credit standards for households more significantly in 2026 than in 2025. The reason for this is the more constraining calculation of regulatory capital requirements. In contrast, the tightening would be less severe for corporations. This desynchronisation is unusual. It tends to illustrate the effect of the ramp-up of the output floor, which would particularly affect housing loans. However, the effect would remain very limited: only one in ten banks is considering to change its standards. New loans to households and corporations would keep their momentum largely unchanged.
Key aspects of European policy, the low carbon transition and energy sovereignty programmes converge on many issues. Rising geopolitical tensions, the European energy crisis of 2022 and heightened international trade tensions have contributed to this convergence. At first glance, it seems obvious: Europe, which is structurally dependent on fossil fuel imports, has an interest in accelerating the decarbonisation of its energy mix in order to reduce its hydrocarbon imports. Nevertheless, the progress of the transition-sovereignty pairing remains a path fraught with obstacles.
Ageing populations, rising long-term interest rates and increased defence spending are adding to the difficulties for public finances across the OECD. While fiscal consolidation – which can be measured by an improvement of the primary balance by at least 3% of GDP in 4 years – is essential for several member states, this is easier said than done. What can we learn from analysing 20 years of European public finance? Historical examples from EU countries show that expenditure-led consolidation can be an effective approach and tends to support stronger growth after it is completed.
The US dollar fell again markedly in the second half of January, particularly against the euro. What does this depreciation, which began in early 2025 and follows a long period of appreciation, reflect? What are its effects on the European economy?
After two quarters of contraction, German industrial output rose by +0.9 % q/q in Q4, despite a December decline (-1.9 % m/m). That decline, driven mainly by the automotive sector, hides ongoing improvements in most other parts of the industry. Those gains are expected to deepen in coming months thanks to a sharp rebound in new orders for capital goods. We see this as signaling the start of a fresh industrial cycle that is increasingly powered by domestic demand. At the same time, a recovery in exports is starting to take shape, with a solid December figure and a pickup in new foreign orders - though the rebound is not as strong as on the home front.
Household spending intentions have been improving in the Eurozone for two years, and in January 2026, they returned to their early 2022 levels, despite a much more gradual improvement in the household confidence index. Households’ fears about unemployment and living standards in general have weighed on consumption and have contributed to its moderate growth. Moreover, these fears have continued to dampen consumer sentiment. However, these concerns are easing and no longer seem to be hindering a potential rebound in consumption, as evidenced by purchasing intentions.
Europe is getting better and better. It has not been spared shocks, notably the war in Ukraine – its impact on energy prices is largely responsible for German stagnation – and political uncertainty in France, which affected French GDP growth in 2025. But Europe is overcoming these difficulties. GDP Growth in the Eurozone proved robust, at 1.5%, and 2026 should be a positive year, even more than in 2025. Industry has emerged from recession, buoyed by defence, aeronautics and AI, while households are showing purchasing intentions not seen since February 2022. All these factors will help Europe to continue building its strategic autonomy. The context is favourable and Europe is becoming increasingly credible in the eyes of investors.
The issue of European sovereignty has been on everyone's mind recently. Among its many dimensions, sovereignty in retail digital payments is often cited as an urgent gap to be filled. In fact, two-thirds of digital payments in the Eurozone rely on non-European providers, mainly American. However, this situation is not inevitable, and 2026 could well be the year when a European alternative takes off and reaches critical mass.
In the Eurozone, the improvement in the business climate points to stronger activity. Household confidence remains moderate but spending intentions are rebounding. The unemployment rate is close to its low point, and inflation remains under control.
Lending rates are relative stable since September. Bank financing flows to Eurozone corporations are expanding faster than market financing flows. In France, outstanding loans continue to recover overall.
The industrial recession ended in Q4 2025 in Germany. Production rebounded, driven by capital goods, as did demand (new industrial orders). However, the business climate remains mixed.
The business climate initially improved in industry (driven by the rebound in aeronautics production) and is now improving in services as well, particularly business services. Household confidence continues to improve, albeit moderately. The labour market remains resilient.
Despite the slowdown in December 2025, the business climate remains favourable. Household confidence remained stable over the last two months of the year. The unemployment rate reached a historic low. At the same time, the number of people in employment remains at its highest level.
The business climate is strengthening and high consumer confidence is supporting private consumption. The labour market remains dynamic. Wage growth (negotiated hourly) continues (+3.5% y/y in Q4; stable compared to Q3) and remains above inflation, leading to an increase in households’ purchasing power.
March 4 will mark the first anniversary of Germany's announcement of its plans for massive investments in defense and infrastructure. The increase in public spending in Germany has already contributed to end the two-year recession (2023-2024) by 2025 – mainly through defense investments, according to our estimates. Infrastructure investments, on the other hand, are currently below the planned amounts. 2026, however, is expected to see a clear acceleration of these programmes, which should bolster a strong pickup in growth and restore Germany’s role as a driving force in the euro area.
Today, we're looking at household consumption, which remains the main driver of growth in both the Eurozone and the United States. As we all know, household consumption suffered a major negative shock during the COVID-19 pandemic.
Since 1 January 2025, banks in the European Union have had to consider the loan-to-value (LTV) ratio of loans to households for house purchases when calculating their regulatory capital. This new prudential requirement is ill-suited to the French market. The criteria for granting home loans are based mainly on the debt service-to-income ratio, leading to historically low default rates. However, since mid-2025, the supervisor has been paying increasing attention to the LTV of home loans in France, which is fuelling concerns about higher borrowing costs and an increase in down payment rates.
