Euro Area GDP Annual Growth Rate Confirmed at 0.8% in Q1

The eurozone economy grew 1.0% year-on-year in the second quarter of 2026, accelerating from an upwardly revised 0.5% in the previous quarter and well above market expectations of 0.5%, according to preliminary estimates. Strong AI-related investment, resilient government spending, and one-off factors helped offset the impact of the conflict in Iran and higher energy prices. Among the largest euro area economies, Spain remained the standout performer, with annual GDP growth of 2.7%, followed by the Netherlands (1.3%), Italy (1.0%), Germany (0.9%), and France (0.7%). On a quarterly basis, the eurozone economy expanded 0.4%, its strongest pace since the first quarter of 2025 and double market expectations of a 0.2% increase.

The Eurozone economy expanded 0.3% yoy in Q1 2026, well below the previously estimated 0.8% and down from 1.2% in Q4 2025. This marks the weakest expansion since Q4 2023, reflecting pressures from tight energy supplies and higher inflation linked to the Middle East conflict. There was a sharp slowdown in gross fixed capital formation (0.3% vs 3.3% in Q4), alongside a decline in exports (-0.9% vs 2.1%). Household consumption also moderated (1.1% vs 1.3%), while government spending accelerated (2.3% vs 1.5%). Imports increased at a slower pace (1.9% vs 3.8%). At the country level, Ireland saw a sharp contraction (-16.8% vs 2.9% in Q4), while Germany posted the weakest growth among major economies at 0.3% (vs 0.4%). Growth also slowed in France (0.9% vs 1.1%) and Italy (0.8% vs 0.9%), whereas Spain slightly outperformed (2.7% vs 2.6%). On a quarterly basis, Eurozone GDP contracted by 0.2%, marking the first decline since 2022 and the steepest drop since the pandemic-era downturn in 2020.

The Euro Area GDP expanded by 0.8% from the previous year in the first quarter of 2026, the softest pace of expansion since the second quarter of 2024, compared to 1.2% in the previous period and in line with the previous estimate. The slowdown was aligned with the energy crunch from the Middle East following the outbreak of war in the region, which triggered surges in the cost of major energy goods since the start of March. Among the economies for which data is available, the GDP growth slowed in Germany (0.3% vs 0.4% in the previous period), France (1.1% vs 1.3%), Italy (0.7% vs 0.9%), Netherlands (1.2% vs 1.8%), Belgium (0.8% vs 0.9%), Cyprus (3% vs 4.3%), Lithuania (2.5% vs 3.3%) and Austria (0.6% vs 0.7%) and shrank in Ireland (-6.3% vs 3%). On the other hand, GDP growth accelerated in Spain (2.7% vs 2.6%), Estonia (1.3% vs 0.8%), Portugal (2.3% vs 1.9%), Slovakia (0.9% vs 0.8%) and Finland (1.3% vs 0.1%) and steadied for Bulgaria at 2.9%.