Eurozone: Higher inflation and ECB hikes projected – BNP Paribas

BNP Paribas economists project Eurozone Gross Domestic Product (GDP) growth slowing from 1.5% in 2025 to 1.0% in 2026 and 1.3% in 2027, with inflation rebounding to 3.0% and 3.3%. Activity is expected to withstand the energy shock thanks to investment in defence, AI and electrification. They anticipate two 25 bp ECB rate hikes in 2026, lifting the deposit rate to 2.5%.

Growth slows as ECB turns tighter

"Eurozone growth would slow due to spillovers from the Middle East conflict."

"GDP growth, which reached 1.5% in 2025, would slow down to 1.0% in 2026 and 1.3% in 2027, while inflation would rebound to 3.0% in 2026 and 3.3% in 2027 (compared to 2.1% in 2025)."

"Activity would nevertheless withstand the energy shock, supported by investment in defence, AI, and electrification, which should continue to boost intra-EU trade."

"As inflation rebounds, two 25-basis-point hikes in the ECB’s policy rate would take place in 2026 – with the first hike expected in June – pushing the deposit facility rate to 2.5%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)