Europe Chart Of The Week: Shocks, SIRENs and surprising resilience

Research evidence excerpt

Europe Chart Of The Week: Shocks, SIRENs and surprising resilience

9 July 2026

Europe Chart Of The Week

momentum. The level of momentum is consistent with Q2 GDP growth of +0.10%

qoq.

The resilience may be attributable to several factors. Firstly, the pass-through of

the shock may have been less severe than anticipated, possibly due to more

extensive business hedging. Crucially, the 2026 energy inflation shock was

smaller than in 2022 and primarily an oil shock, not a gas shock. This impacted

transport fuels rather than the cost of power, making distribution more expensive

but not production. This scales down the economic shock.

Secondly, counterbalancing forces may have been at play. While we are sceptical

of arguments like firms front-loading activity or Europe's role in the global AI

investment cycle, the reality is the real data have held up well.

Some caution is still warranted. Not only have oil prices risen again somewhat in

recent days, the transmission of the initial energy shock may be lagged. Other

headwinds include the drag on exports from US tariffs and the Second China

Shock. The ECB's June interest rate hike will tighten financial conditions, and the

upcoming French Presidential election could generate risk premia.

Despite these potential challenges, tailwinds also exist. Increased AI spending is

one, particularly given Europe's lag behind the US – the ECB leaned into this

tailwind in the June Accounts. Germany's renewed reform drive could also boost

fiscal multipliers and larger-than-expected growth spillovers from defense and

infrastructure spending, further underpinning resilience.

Assuming the MOU holds and oil prices remain under control, we have probably

passed the low point in the European growth revision cycle.

Deutsche Bank AG Page 2