The Eurozone is showing resilient growth driven by investment and domestic demand, absorbing the shock of trade tensions. However, the strong euro and competition from Asia are weighing on competitiveness, with risks of sectoral slowdowns that could spread. 

Activity will have slowed on an annual average in 2025, but will have remained particularly resilient. It is expected to accelerate in 2026 and continue to grow at a rate slightly above potential growth in 2027. Supportive factors (increased defence spending in the European Union, Germany's fiscal bazooka, but also a revival in domestic investment) would outweigh the headwinds (notably higher US tariffs). Political instability would no longer weigh particularly heavily on growth, but fiscal adjustment would be limited, with a reduction in the public deficit to below 3% of GDP and a stabilisation of the debt ratio effectively delayed.

As we look toward 2026-2027, the Italian economy is transitioning to a new phase while still carrying vulnerabilities from previous shocks. Despite lower energy costs, household finances remain strained with precautionary saving persisting, while businesses continue to face margin pressure and competitive disadvantages. This underlying weakness leaves the economy susceptible to disruptions from US tariffs and their cascading global effects. Disinflation and improved borrowing conditions have stabilized economic activity but haven't triggered the sustained momentum needed for catch-up growth. Growth will therefore remain limited to 0.5% in 2026 before reaching 0.8% in 2027. Several support measures planned for 2026 should help bolster household consumption and productive investment, partially offsetting the slowdown despite limited fiscal space. Nevertheless, Italy continues to search for reliable, self-sustaining sources of economic expansion. Moreover, longer-term growth prospects are limited by the anticipated construction sector downturn, vulnerability to external shocks, and ongoing fiscal consolidation requirements.

The gradual slowdown in growth in the third quarter of 2025 confirms the refocusing of the Spanish economy on domestic demand. Private consumption and investment continue to support activity, against a backdrop of moderating public consumption and the gradual normalisation of the labour market. At the same time, the negative contribution of foreign trade, linked to the decline in goods exports and strong imports, is weighing on growth, without calling into question the strength of the domestic cycle. The Spanish economy is thus approaching the end of the year with continued robust momentum, but increasingly dependent on its internal drivers. 

As anticipated, economic activity slowed after a very strong start to 2025. Exports decelerated, impacted by the US tariffs. Business investment suffered from rising labour costs following the increase in employer National Insurance contributions in April 2025 and margin erosion. Household consumption growth remained weak, burdened by uncertainty factors weighing on confidence, a new surge in inflation, and deteriorating labour market conditions. In 2026, consumers will benefit from government measures aimed at reducing the cost of living and an expected significant decline in inflation (return to target expected in Q2-2026). In 2027, however, the tax increases that were announced by the government in the Autumn Budget 2025 should once again weigh on private consumption growth. The BoE is expected to cut rates again in February, probably for the last time. Although the disinflation process looks to be faster than anticipated three months ago, persistently high core inflation is fuelling divisions within the MPC and makes any future monetary easing uncertain.