The eurozone economy grew more strongly than expected in the second quarter of 2026, demonstrating resilience despite the economic fallout from the conflict involving Iran.

According to Eurostat, eurozone GDP increased by 0.4% quarter-on-quarter, following stagnation at the beginning of the year. It marks the bloc’s strongest quarterly performance in more than 12 months and exceeded the 0.2% growth forecast in a Bloomberg survey. Germany, France, Italy and Spain all posted positive economic growth.

Stronger-than-expected resilience

Thursday’s data suggest the eurozone has withstood the disruption and uncertainty caused by tensions in the Middle East, despite sharp increases in oil prices that have fueled inflation, squeezed household budgets and weighed on investment.

Recent economic indicators point to further improvement, even as renewed hostilities continue to cast uncertainty over peace efforts between the United States and Iran. Business confidence also recovered in both Germany and France during July.

However, the European Central Bank (ECB) warned that the full impact of the initial energy shock “has not yet materialised.”

Although the ECB left interest rates unchanged this month, it highlighted upside risks to inflation and downside risks to economic growth. Some policymakers now support another rate increase following June’s hike, while investors are pricing in an additional move in September.

Spain’s inflation accelerated more than expected to 3.8% in July, while regional inflation indicators in Germany also pointed higher. Eurozone inflation data due on Friday are expected to show headline inflation edging up to 2.9%.

Slovakia’s central bank governor, Peter Kažimír, said this week the ECB should raise borrowing costs at least once more to ensure inflation risks remain under control.

GDP performance across the eurozone

Several eurozone economies reported stronger quarterly growth:

• Netherlands: GDP growth accelerated to 0.4%, up from 0.2%, matching expectations.
• Belgium: Economic output remained unchanged after a positive start to 2026.
• Austria: The economy was flat after expanding 0.2% in the first quarter, as weak consumer spending weighed on activity.
• Ireland: GDP rebounded sharply, growing 3.9% after contracting earlier in the year. Ireland’s data often have a significant impact on overall eurozone figures.
• Portugal: Growth accelerated to 0.8%, up from 0.1%.
• Finland: Preliminary GDP growth remained steady at 0.9%.
• Lithuania: The economy rebounded with 1.7% growth after shrinking in the first quarter.

Performance of the eurozone’s largest economies

Germany

Germany’s economy expanded 0.2% in the second quarter, slowing after an unexpectedly strong start to the year that was revised higher to 0.4%.

Nevertheless, activity remained more resilient than expected. Massive investment plans in infrastructure and defence, combined with optimism over economic reforms, are improving the country’s outlook.

Germany’s Economy Ministry said the steady flow of positive economic data points to a recovery during the second half of 2026, although prospects remain heavily dependent on developments in the Middle East.

France

France’s GDP increased 0.2% after unexpectedly contracting 0.1% in the first quarter.

Consumer spending rose 0.2%, while trade continued to support growth despite investment declining for a second consecutive quarter.

Finance Minister Roland Lescure said France is proving resilient despite mounting challenges and maintained the government’s forecast for 0.7% annual growth in 2026, even as efforts to reduce the country’s large budget deficit become increasingly difficult.

Italy

Italy also recorded 0.2% growth in the second quarter, providing some relief as Prime Minister Giorgia Meloni balances EU fiscal requirements while attempting to shield households from rising energy costs ahead of next year’s elections.

As the EU’s second-largest natural gas consumer, Italy remains particularly vulnerable to higher energy prices linked to the conflict involving Iran.

Both the Italian government and the country’s central bank forecast 0.6% GDP growth for 2026.

Spain

Spain once again outperformed its eurozone peers, posting 0.7% quarterly growth, exceeding analysts’ expectations.

Growth was supported by:

• Strong consumer spending
• Continued immigration-driven labour force expansion
• Recovery in tourism
• Inflows of European Union recovery funds

Spain also recorded its strongest labour market performance since the global financial crisis, alongside continued reductions in both its fiscal deficit and public debt.

“In such a difficult and complex environment, we are on track to end 2026 growing five times faster than Italy, four times faster than Germany and three times faster than France,” Prime Minister Pedro Sánchez said this week.

The Spanish government forecasts 2.6% GDP growth for 2026.