Slower Growth Despite Robust Corporate Profits

Economy

Seasonally adjusted gross domestic product (GDP) fell by 0.20% in the euro area and by 0.10% in the European Union (EU) in the first quarter of 2026 compared with the previous quarter. On a year-over-year basis (Q1 2026 vs. Q1 2025), it rose by 0.30%.

Due to the stronger impact of the war in the Middle East on commodity markets and the slowing momentum in economic activity, the European Commission anticipates a weaker economy in its spring forecast. After 1.50% in 2025, GDP growth in the EU is expected to slow to 1.10%—a downward revision of 0.30% compared to the fall forecast (1.40%). The situation is then expected to improve slightly in 2027, rising to 1.40%.

The labor market is stable, and the unemployment rate in the euro area remained unchanged at 6.30% in April 2026.

Annual inflation in the euro area stood at 3.20% in May 2026, up from 3.00% in April. A year earlier, it was 1.90%. Inflation in the euro area is expected to rise to 3.00% in 2026—1.10% higher than previously forecast—and to fall back to 2.30% in 2027.

European Central Bank (ECB) - Monetary Policy

The ECB raised its key interest rate by 25 basis points to 2.25% this month, It was the first increase since 2023, after the war in Iran and the resulting energy shock had driven inflation in the eurozone to 3.20% in May (ECB target: 2.00%).  

The global environment now appears somewhat more favorable, as energy prices have fallen following the announcement of the framework agreement, even though they remain above the average levels seen in January and February 2026. Inflation expectations have eased slightly, and the pressure for further monetary tightening has eased somewhat.

Corporate Earnings

The European stock market is proving surprisingly resilient despite inflation risks and weaker growth prospects. During the Q1/2026 earnings season, many European corporations exceeded earnings expectations. Currently, a positive trend in revenue and earnings expectations is emerging for European companies over the next few quarters. Revenue is expected to rise by +10.00% year-over-year in both Q2 and Q3. Earnings are projected to be +14.00% higher in Q2 and +15.00% higher in Q3 compared to the previous year. The expected profit increase for the full year 2026 is +16.00%.

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GDP Growth 2026: +1.10% (E)
‍EU Inflation 2026: + 3.00% (E)
Current 3-month Euribor: + 2.33%

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Daniel Beck, Member of the Executive Board

_{Sources: European Commission, Eurostat, LGT Bank AG
As of: June 23, 2026}