Europe Economic Weekly: Mid-year review: it could have been worse

Research evidence excerpt

Europe Economic Weekly: Mid-year review: it could have been worse

Weekly view

A bit more growth, a bit less inflation, still some

hawkishness

We warned last week that we were in the process of our customary “Mid-Year” forecast

update with the global economics team. And, we have just published it (see Global

Economic Viewpoint: Mid-Year review: Hydration Break – 25 June 2026). We have also

incorporated the recent cut from Francisco Blanch, our commodities expert, to his Brent

and Dutch natural gas price forecasts (Global Energy Weekly: Oil gets the memo 17 June

2026). We are left with a bit more growth and a bit less inflation than before (details

below). Of course, we don’t go back to our pre-war forecasts; the shock is not as bad as

before, but it’s still sizeable. That should mechanically mean less hawkish central banks.

While this is certainly true for the Bank of England (BoE), where we no longer expect

hikes this year, we still think the ECB is more likely than not, absent dovish surprises, to

deliver a second hike in September (no longer in July).

Euro area: it could have been worse, but it’s still not great

Lower oil and gas prices reduce the damage from the energy crisis. The growth recovery

is likely to start earlier, and permanent GDP loss is likely to be smaller than previously

assumed. Our GDP growth forecast moves to 0.5% this year (-20bp, due to Ireland

effects in 1Q26 masking better sequential growth) and 1.3% in 2027 (+10bp). We extend

our horizon to 2028, now expecting 1.1%.

The shock of the energy crisis has now possibly halved compared to our initial

expectations in early April (when we assumed oil prices would remain close to USD 100

per barrel and natural gas at EUR 80 or more for most of this year). But we are still