Eurozone forecast update A ‘bad’ baseline

Research evidence excerpt

Eurozone forecast update A ‘bad’ baseline

12 May 2026

Economics

Eurozone Eurozone forecast update

A ‘bad’ baseline

◆ We shift our base case close to our previous ‘bad’ case…

◆ …and expect three ECB hikes this year…

◆ …but see a sharp reversal of this tightening next year

The bad becomes the baseline (Charts 1-4, Tables 13-15)…

In March, we set out three scenarios for the eurozone outlook: the good, the bad and

the ugly (European Economic Quarterly, 23 Mar). For the baseline, we optimistically

adopted the ‘good’ scenario. Since then, the oil price has broadly followed our ‘bad’ Simon Wells

case and our oil strategists recently raised their forecasts (Oil markets, 6 May). In Chief European Economist

HSBC Bank plc

better news, gas prices have been much closer to the ‘good’ case, meaning inflation simon.wells@hsbcib.com

should be a bit more contained. Even so, we now switch our base case closer to the +44 20 7991 6718

‘bad’ scenario, projecting eurozone inflation to peak just under 4% in September and Chris Hare

Senior Economist, Eurozone, UK and Ireland

growth to slow to a near-standstill through much of 2026. HSBC Bank plc

chris.hare@hsbc.com

…with three ECB hikes this year, followed by a full reversal in 2027 (Chart 6) +44 20 7991 2995

This also requires moving closer to the ‘bad’ path for monetary policy. With energy prices Chantana Sam

still likely to be elevated in June, we expect the ECB to hike by 25bps. We then expect Economist,HSBC ContinentalFranceEuropeand Switzerland

two further back-to-back rate rises, in July and September. Given that policymakers are chantana.sam@hsbc.fr

+33 1 40 70 77 95

trying to head off second-round effects on inflation, we think it makes most sense to go

big and go early – though there are large risks surrounding a September hike.