Eurozone GDP barely grew in Q1 2026 as energy crisis weighs on consumer confidence
The eurozone economy expanded by a scarcely perceptible 0.1 per cent in the first quarter of 2026, according to preliminary data, as the spillover effects of the Middle East energy crisis weighed heavily on household consumption and corporate investment throughout the single currency area.
The flash estimate, published by Eurostat, confirmed economists’ expectations that growth would lose momentum following a relatively resilient conclusion to 2025. Domestic demand was the principal driver of the modest expansion across the bloc, underpinned by a still-tight labour market, whilst net exports made a negative contribution as global trade conditions deteriorated.
The Conference Board, which had previously projected eurozone growth of 1.3 per cent for the full year, has revised its forecast downwards to 1.0 per cent, citing both the duration of the energy shock and softening forward-looking indicators. The European Commission’s Employment Expectations indicator dipped to its lowest level in 18 months, hinting at a cooling of hiring intentions in certain sectors.
Germany and Italy, both heavily exposed to manufacturing and to imported fossil fuels, registered notably weak growth, with industrial production indices showing contractions in energy-intensive sectors such as chemicals, basic metals and paper. France posted a marginally better performance, supported by services activity, whilst Spain continued to outperform owing to tourism and lower energy intensity in its growth model.
Consumer confidence indicators have softened across the bloc since the war commenced. Real disposable income has been eroded by higher energy bills and food prices, with low-income households disproportionately affected. National governments have responded with a mixture of fuel subsidies, targeted transfers and price caps, but the fiscal space for sustained intervention remains constrained in member states still subject to the bloc’s reformed fiscal rules.
The labour market has thus far remained a source of relative strength. The unemployment rate edged up to 6.2 per cent in February from 6.1 per cent in January, a modest increase that nevertheless signals the beginning of a possible softening. Job vacancy rates have been gradually declining since their post-pandemic peak, suggesting that the imbalance between labour demand and supply is narrowing.
Looking ahead, the trajectory of the eurozone economy depends heavily upon the resolution of the Middle East conflict and the path of energy prices. A scenario in which the conflict eases by the end of summer and energy prices retreat would permit a modest recovery in the second half of the year. A prolonged disruption would risk pushing the bloc into a technical recession, a development that would test the policy responses of both Brussels and the European Central Bank.
