European Central Bank sees modest recovery but warns of geopolitical risks

The European Central Bank says the euro‑area economy is showing only a faint improvement in the second quarter, with growth remaining fragile because of energy market volatility and the ongoing conflict in the Middle East. The ECB notes that the modest recovery in services is offset by pressures in industry and that future growth will depend on how quickly energy prices stabilise and whether the Middle‑East war escalates.

A survey of analysts commissioned by the ECB projects euro‑area GDP growth of just 0.6 % in 2026, rising to 1.2 % in 2027, with inflation expected around 2.7 % in 2026 and 2.2 % in 2027. Unemployment is forecast at roughly 6.3 % for 2026‑27. The analysts assess that secondary effects of the Middle‑East war on Europe will be limited but could raise inflationary pressure in the near term.

The outlook highlights four pillars the ECB believes could support a stronger recovery: private consumption, digital‑technology investment, public spending on defence and infrastructure, and a gradual rebound in exports.