Data recently released by the European Statistical Office (Eurostat) indicates that Q1 GDP for both the eurozone and the entire European Union (EU) increased by 0,1% compared to the last quarter of 2025. In Q4/2025, GDP rose by 0,2% in both regions.

Peter Vanden Houte, chief economist for Belgium, Luxembourg, and the eurozone at ING investment bank, described this outcome as "disappointing". The Associated Press (AP) echoed this sentiment. Compared to the same period in 2025, growth for the eurozone and EU reached 0,8% and 1% respectively.

Eurozone and EU GDP growth by quarter compared to the same period in the previous year. Source: Eurostat

In the first three months of 2026, compared to the same period in 2025, Germany's GDP surprisingly exceeded expectations, growing by 0,3%. Spain's economy maintained a leading growth rate of 0,6%, while France saw no growth (0%).

According to Peter Vanden Houte, the Q1 GDP results do not yet reflect the full impact of the energy shock and supply issues stemming from the Middle East conflict. Meanwhile, there are already signs of increasing challenges ahead.

The European Commission observed a weakening in the purchasing managers' index (PMI) and business sentiment starting in April. "It is too early to say whether the situation will lead to negative growth, but the impact on inflation is already clear," Peter Vanden Houte stated.

According to Eurostat, eurozone inflation reached 3% in April, up from 2,6% in March. This was due to a 10,9% surge in energy prices, as the Middle East conflict disrupted fuel and goods transportation through the Strait of Hormuz.

Customers selecting food in Madrid, Spain on 21/2. Photo: Reuters

The combination of slow growth and high inflation—known as "stagflation"—presents a difficult challenge for the European Central Bank (ECB). Although inflation has surpassed its 2% target, the ECB announced on 30/4 that it would keep interest rates unchanged at 2%.

"The longer the conflict lasts and the higher energy prices remain, the stronger the impact on overall inflation and the economy," the ECB statement noted.

ING forecasts European inflation to gradually escalate to 4%, as the contribution of energy prices to overall inflation continues to rise. A shortage of fertilizers risks leading to increased food prices by year-end. "We cannot rule out indirect effects from the energy shock, as price increase expectations have emerged across all sectors," Peter Vanden Houte said.

By Phien An (according to AP, Reuters, ING)