Europe Economic Weekly: Spain rides high as the Rhine runs dry

Research evidence excerpt

Europe Economic Weekly

Global Markets Research

7 August 2026

Economics - EMEA/Euro Area/Europe

Spain rides high as the Rhine runs dry

Research Analysts

European Economics

George Buckley - NIplc

• The German government is considering backing Bundesbank President Nagel to

replace ECB President Mme Lagarde. Spanish data continue to outperform.

• It has been a quiet week for economic data in the UK. In this report, we evaluate how

UK inflation expectations surveys have developed in recent months.

Week in review

The German government is considering backing Bundesbank President Nagel to replace

ECB President Mme Lagarde, though we think Nagel is unlikely to be chosen as Lagarde’s

successor. Spanish data continue to outperform, with the July PMIs surging. Europe’s hot

and dry summer is resulting in record low water levels in the Rhine River for this time of year,

and could have an adverse effect on German industrial production and GDP.

Andrzej Szczepaniak - NIplc

Josie Anderson - NIplc

It has been a quiet week for economic data in the UK. In this report, we evaluate how UK

inflation expectations surveys have developed in recent months in an update to our guide to

European inflation expectations surveys, published in May. July surveys indicate UK and

euro area inflation expectations have retreated towards pre-conflict levels. However,

policymakers still monitor developments closely, and we may need to see further falls in UK

inflation expectations surveys for inflation to sustainably return to 2%.

Data preview

We expect Norges Bank to leave its policy rate unchanged, following inflation data for

which we expect underlying inflation to tick up. We see Q2 UK GDP rising 0.3% q-o-q.

European economic outlook

We expect the period of higher energy prices to dampen euro area growth in H2 but see

an acceleration of growth in 2027, especially if oil prices settle at early-2026 levels.

Inflation was above target in H1 2026 due to the Iran war and service inflation remains

somewhat sticky. The ECB sees core inflation remaining above 2% by end-2028, an

overshoot we think will require one more depo rate hike to rectify.

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