The European Commission’s Spring 2026 Economic Forecast projects a marked slowdown in economic activity across the EU, as the conflict in the Middle East triggers a

renewed energy shock that fuels inflation and weakens business and consumer confidence.

Until late February 2026, the EU economy had been expected to maintain moderate growth while inflation continued to ease. However, the outbreak of the conflict has significantly altered the outlook. Within weeks, soaring energy commodity prices began driving inflation higher, while economic momentum weakened across the bloc. Conditions are expected to improve gradually in 2027 if tensions in global energy markets begin to subside.

EU GDP growth, which reached 1.5% in 2025, is now forecast to slow to 1.1% in 2026 — 0.3 percentage points lower than projected in the Autumn 2025 Forecast. Growth is expected to recover modestly to 1.4% in 2027. In the euro area, growth projections have also been revised downward, to 0.9% in 2026 and 1.2% in 2027.

At the same time, inflation is forecast to rise sharply. EU inflation is now expected to average 3.1% in 2026, one percentage point above earlier projections, before easing to 2.4% in 2027. Euro area inflation is projected at 3.0% in 2026 and 2.3% in 2027.

Economic growth weakens under renewed energy pressure

As a major net energy importer, the EU economy remains highly vulnerable to energy market disruptions. The conflict in the Middle East has created the second major energy shock in less than five years, pushing up energy prices and increasing costs for both households and businesses. Higher energy bills are weighing on consumer spending, while rising operating costs are squeezing company profits and limiting investment.

Consumer confidence fell to its lowest level in 40 months following the outbreak of the conflict, amid growing concerns over inflation and employment prospects. Although private consumption is still expected to support growth, investment activity is likely to remain subdued due to tighter financing conditions, lower profitability and heightened uncertainty. Slower external demand is also expected to dampen export growth.

At the same time, previous EU investments in energy resilience are helping soften the impact of the shock. Measures introduced following Russia’s full-scale invasion of Ukraine — including supply diversification, energy efficiency improvements and accelerated decarbonisation — have strengthened the EU’s ability to absorb renewed volatility in global energy markets.

Inflation outlook deteriorates

The inflation outlook has worsened significantly since the Autumn 2025 Forecast. Data from March and April already point to a sharp acceleration in headline inflation driven primarily by higher energy prices.

Inflation is now expected to peak in 2026 before easing gradually in 2027 as energy commodity prices moderate. However, prices are still projected to remain roughly 20% above pre-conflict levels, continuing to place pressure on households and businesses.

## Labour market remains resilient, but momentum slows

Employment growth in the EU remained positive in 2025, with more than one million jobs created and total employment rising by 0.5%. However, job growth is forecast to slow to 0.3% in 2026 before edging up slightly to 0.4% in 2027.

The long-standing decline in unemployment is expected to level off, with the EU unemployment rate stabilising at around 6% by 2027. Meanwhile, nominal wage growth is projected to remain elevated as workers seek compensation for higher living costs.

Public finances come under additional strain

The renewed energy shock is expected to place further pressure on public finances across the EU. The general government deficit is forecast to increase from 3.1% of GDP in 2025 to 3.6% by 2027, driven by weaker economic growth, higher interest costs, expanded support measures for households and businesses, and increased defence spending.

Public investment is expected to remain elevated despite the gradual end of Recovery and Resilience Facility disbursements.

The EU debt-to-GDP ratio is projected to rise from 82.8% in 2025 to 85.3% in 2027. In the euro area, debt is expected to climb from 88.7% to 91.2% over the same period, reflecting wider deficits and less favourable financing conditions. By 2027, four EU Member States are expected to record debt levels exceeding 100% of GDP.

Uncertainty and supply disruptions continue to threaten outlook

The duration of the Middle East conflict and its impact on global energy markets remain the central risks to the forecast. Given the unusually high degree of uncertainty, the Commission also examined an alternative scenario involving prolonged supply disruptions and significantly higher energy prices.

Under this scenario, inflation would remain elevated throughout 2027, while economic growth would fail to recover as anticipated in the baseline forecast. Higher costs could lead households and firms to reduce consumption and investment more sharply than currently projected.

Additional risks include shortages of key commodities and industrial inputs — such as refined oil products, helium and fertilisers — which could disrupt global supply chains and further increase food and production costs.

The continued weakening in labour demand, reflected in lower hiring activity and fewer job vacancies, could also lead to slower employment growth than currently expected. At the same time, ongoing geopolitical tensions and uncertainty surrounding global trade policies may continue to weigh on confidence and investment.

Despite these challenges, faster implementation of structural reforms and sustained public investment in strategic sectors such as defence and the energy transition could support future growth. Artificial intelligence also presents both opportunities and risks, with potential productivity gains offset by possible labour market disruption.

Background

The forecast is based on technical assumptions regarding exchange rates, interest rates and commodity prices as of 29 April 2026. It incorporates all other available information, including government policy measures, up to 4 May 2026.

The Spring 2026 Forecast also includes special analyses on long-term reductions in EU energy consumption, the widening divide in AI adoption, labour market developments, macroeconomic responses to energy shocks, and fiscal measures introduced to address the latest surge in energy prices.

The European Commission publishes comprehensive economic forecasts twice a year — in spring and autumn — covering all EU Member States, candidate countries, EFTA economies and major global economies. The next update, the Autumn 2026 Economic Forecast, is scheduled for publication in November 2026.