Euro: Supported by ECB hikes and AI investment – BNP Paribas

GDP Growth 2025

1.5%

Projected Eurozone GDP growth for the year 2025.

Inflation 2026

3.0%

Expected inflation rate in the Eurozone for the year 2026.

EUR/USD Forecast 2026

1.21

Forecasted EUR/USD exchange rate by Q4 2026.

§ 01 Executive Snapshot

What: BNP Paribas projects Eurozone GDP growth to slow while inflation rebounds, supported by investments in defense, AI, and electrification.
Who: BNP Paribas, European Central Bank (ECB).
Why it matters: This projection highlights the resilience of the Eurozone economy amidst external shocks and monetary policy adjustments.

Eurozone GDP growth is forecast to slow from 1.5% in 2025 to 1.0% in 2026 and 1.3% in 2027.
Inflation is expected to rebound to 3.0% in 2026 and 3.3% in 2027, up from 2.1% in 2025.
The ECB is projected to deliver two 25-basis-point hikes in 2026, with the first hike anticipated in June, raising the deposit facility rate to 2.5%.
EUR/USD is forecasted to reach 1.21 by Q4 2026 and 1.25 by Q4 2027.

The Eurozone's economic performance is being affected by external geopolitical events, particularly the Middle East conflict, which is expected to have spillover effects.
Investment in sectors like defense and AI is crucial for maintaining intra-EU trade and economic stability in the face of energy shocks.

The projected ECB rate hikes indicate a tightening monetary policy, which could impact borrowing costs and consumer spending in the Eurozone.
The gradual depreciation of the USD against the EUR may signal shifts in global currency dynamics and investor sentiment towards the Eurozone.

The ongoing Middle East conflict poses a significant risk to Eurozone economic stability and growth projections.
Potential inflationary pressures could complicate policy responses and economic recovery efforts.

The first ECB rate hike in June 2026 will be a critical milestone to monitor for its impact on market sentiment and economic activity.
Observing the evolution of the USD/EUR exchange rate will provide insights into broader currency market trends and Eurozone competitiveness.

§ 07

What is BNP Paribas projecting for Eurozone GDP growth?

BNP Paribas projects Eurozone GDP growth to slow from 1.5% in 2025 to 1.0% in 2026 and 1.3% in 2027.

Why is inflation expected to rebound in the Eurozone?

Inflation is expected to rebound due to increased investments in sectors like defense, AI, and electrification.

When is the first ECB rate hike anticipated?

The first ECB rate hike is anticipated in June 2026, raising the deposit facility rate to 2.5%.

Who is responsible for the projected economic changes in the Eurozone?

The European Central Bank (ECB) and BNP Paribas are key players in the projected economic changes in the Eurozone.