ECB survey cuts eurozone growth outlook, lifts core inflation
Professional forecasters have sharply downgraded eurozone growth prospects for this year while revising core inflation upwards, signalling a sluggish economy that will complicate the ECB's interest rate decisions.
The European Central Bank’s latest Survey of Professional Forecasters paints a picture of an economy losing momentum while underlying price pressures remain stubborn. Economists polled between 1 and 6 July cut their 2026 real GDP growth expectation by a sharp 0.4 percentage points to just 0.6%. At the same time, they revised their outlook for core inflation upwards.
Headline Harmonised Index of Consumer Prices (HICP) inflation expectations for 2026 were left broadly unchanged at 2.7%. However, the gauge excluding food and energy costs—known as HICPX—was revised up by 0.2 percentage points to 2.4%. This specific adjustment brings private sector expectations into closer alignment with the ECB’s own June 2026 staff projections, suggesting that domestic price pressures are proving more resilient than previously thought.
Looking further ahead, headline inflation is expected to ease to 2.2% in 2027 and hit the ECB’s 2% target in 2028. Core inflation expectations for 2027 and 2028 were left unchanged at 2.2% and 2.1% respectively. Crucially, longer-term inflation expectations for 2031 remained firmly anchored at 2.0% for both headline and core measures, a relief for policymakers wary of unmoored price expectations.
The growth downgrades, however, extend well beyond the immediate horizon. Forecasters trimmed their 2027 GDP outlook by 0.1 percentage points to 1.2%, while expectations for 2028 were kept at 1.3%. Even the longer-term growth outlook for 2031 was downgraded by 0.1 percentage points, settling at 1.2%. This weakening economic momentum is expected to exact a toll on the labour market.
Unemployment rate expectations were revised up slightly for both 2027 and 2028. Respondents now anticipate the jobless rate will stand at 6.3% in 2026 and 2027, before edging down only marginally to 6.2% in 2028 and 6.1% in the longer term. A deteriorating jobs market typically dampens consumer spending, posing further headwinds to the broader growth recovery.
A special question within the survey assessed the potential economic fallout from the ongoing war in the Middle East. Respondents indicated that they expect only limited indirect and second-round effects from the conflict. Any inflationary impact from the geopolitical disruption is expected to be concentrated entirely in 2026, with the balance of risks to inflation tilted somewhat to the upside this year before becoming more balanced thereafter.
For markets and investors, the survey underscores a challenging macroeconomic environment. The combination of downward growth revisions, rising unemployment, and sticky core inflation suggests the ECB will have little room to manoeuvre as it contemplates its next moves. The central bank's own updated macroeconomic projections, scheduled for publication on 10 September, will be scrutinised for signs of how it plans to navigate this tightening squeeze.
