Improved earnings outlook due to favorable economic conditions

Economy

In the second quarter of 2026, seasonally adjusted gross domestic product (GDP) rose by 0.6% in the euro area and by 0.7% in the European Union (EU) compared with the previous quarter. In the first quarter of 2026, GDP had remained stable in the euro area and had risen by 0.1% in the EU. According to the latest forecasts from the European Central Bank (ECB), the annual real GDP growth rate will be 0.8% in 2026, 1.2% in 2027, and 1.5% in 2028.

The European economy is posting higher growth rates and is being supported by exports and the recovery in the industrial sector, but consumer demand remains subdued, and renewed pressure on energy prices could slow down the manufacturing sector. The German economy, in particular, will become a key driver of economic growth this year. The massive surge in energy prices and rising interest rates could well have stifled the upturn that was already visible at the beginning of the year. Instead, Europe is riding a wave of economic momentum.

Inflation in the eurozone stood at 3.2% in August 2026 (with energy, up 14.3%, being the strongest driver of prices), up from 2.9% in July. The ECB’s projections forecast inflation in the eurozone at 3.0% for 2026, 2.3% for 2027, and 2.0%—the inflation target—for 2028.

The labor market remains stable, and the unemployment rate in the EU stood at 6.1% in July 2026.

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European Central Bank (ECB) - Monetary Policy

This month, the ECB decided to raise its key interest rate by another 25 basis points to 2.50%. The conflict in the Middle East continues to fuel inflationary pressures, and inflation is expected to remain well above the 2% target for an extended period.

The ECB signaled a more cautious assessment of inflation persistence and economic resilience, emphasizing the upside risks posed by energy prices as well as potential second-round effects on core inflation. We consider another rate hike likely, which would bring the interest rate to 2.75% by the end of the year.

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Corporate Earnings

The STOXX Europe 600 is projected to post year-over-year earnings growth of around 24% for the second quarter of 2026; even excluding the energy sector, growth still exceeded 10%. In September, sentiment brightens significantly once again, and growth rates continue to accelerate. The resilient economy is supporting companies, whose earnings outlook has recently brightened further. While higher interest rates and rising energy prices are creating headwinds, the combination of a solid economy, improved earnings expectations, and, more recently, more moderate valuations points to a positive outlook for the European stock market.

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GDP Growth 2026: +0.80% (E)
‍EU Inflation  2026: +3.10% (E)
Current 3-month Euribor: +2.61%

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Daniel Beck, Member of the Executive Board

_{Sources: European Commission, Eurostat, LGT Bank AG
As of: September 29, 2026}