Doha, Qatar: Qatar National Bank (QNB) forecast economic growth in the euro area to continue at up to 1.5 percent, a rate higher than the consensus forecast, supported by improved consumption conditions, a recovery in the manufacturing sector, and increased fiscal spending.
In its weekly report, the bank noted that the euro area economy has faced exceptional pressures in recent years stemming from a combination of negative factors, foremost among them unprecedented monetary tightening, the energy crisis, weak external demand, and elevated levels of global uncertainty.
The report pointed out that these challenges were reflected in the region’s economic performance, with average growth not exceeding 0.8 percent during the period from 2023 to 2025, a rate more than two-thirds lower than the average annual growth of the US economy, which stood at 2.6 percent over the same period.
QNB believes that the expected improvement in growth is based on three main factors, the first being a recovery in consumer spending, supported by improved household financial conditions and growth in real income. The euro area has succeeded in bringing inflation under control, with it stabilizing near the 2 percent target set by the European Central Bank over the past year.
In this context, the report noted that this decline allowed for the adoption of a more accommodative monetary policy, with the benchmark interest rate cut by 200 basis points from its peak of 4 percent in mid-2024 to 2 percent by June 2025.
The report considered that this shift in monetary policy is no longer a drag on consumption, but has contributed to expanding real credit to the private sector. At the same time, labor markets have remained resilient, with the unemployment rate approaching historical lows at 6.3 percent.
QNB said it expects real household income to grow by around 1.5 percent in 2026, which is likely to translate into similar growth in consumption, which accounts for more than half of the euro area’s gross domestic product.
The second factor supporting growth relates to expansionary fiscal policy, particularly in Germany, alongside increased defense spending across the euro area.
The bank stated that Germany is expected to witness notable fiscal expansion in 2026, driven by higher spending on social support and defense, with the fiscal deficit reaching about 3.7 percent of GDP.
Estimates suggest that this expansion could add around 0.5 percentage points to German economic growth, noting that Germany accounts for nearly 30 percent of the euro area economy.
The report added that the move to increase defense spending in a large number of euro area countries as a result of the Russia-Ukraine war could contribute between 0.2 and 0.4 percentage points to real GDP growth in 2026, meaning that fiscal policy will not weigh on growth, unlike in 2025.
As for the third factor, it is linked to the manufacturing sector, which has begun to show clear signs of stabilization after a prolonged downturn. The sector suffered during 2023 and 2024 from monetary tightening, high energy costs, weak external demand, and a sharp correction in inventory levels, leading to an annual contraction of around 6 percent.
In this regard, the report stated that as the effects of inventory correction fade, energy costs return to normal levels, and some global trade tensions ease, the manufacturing sector has returned to posting positive growth rates.
The bank concluded its report by noting that, despite the persistence of structural challenges, the improvement in manufacturing performance, which represents between 15 and 20 percent of the euro area economy, is expected to provide additional support to growth during 2026.
