1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 68
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
EUROZONE
Juan Manuel Herrera
Betancourt
Senior Economist,
Investment Strategy
Latest
2025f
2026f
2027f
GDP Growth
1.2%
1.4%
1.1%
1.5%
Inflation
2.2%
2.1%
1.8%
2.0%
Unemployment
6.4%
6.4%
6.3%
6.2%
Budget Bal.
-3.2%
-3.2%
-3.4%
-3.4%
Latest
2025
1-yr fwd
2-yr fwd
3-mo yield
2.1%
2.1%
2.1%
2.6%
10-yr yield
2.9%
2.9%
3.1%
3.2%
Yield curve slope
0.7%
0.7%
1.0%
0.6%
Source: Bloomberg Finance LP, Scotiabank Economics, Scotia Wealth Management. "Latest" values are as at December 31, 2025 and, for data other than bond
yields, pertain to the most recent monthly, quarterly, or annual reading available on this date. GDP and inflation forecasts are based on Scotiabank Economics
forecasts dated December 11, 2025. Remaining forecasts are based on median consensus estimate compiled by Bloomberg | 2025 inflation and unemployment
are based on the average YoY rates for each month of the year. | 2025 yields are as at December 31, 2025. Forward periods are relative to December 31, 2025 and
are based on forward market pricing.
Key conclusions
•
Reduced trade uncertainty and building fiscal momentum will act to support the
Eurozone economy in 2026, challenged by a still problematic tariffs backdrop (even if at
defined levels) and political risks in some of the bloc’s main economies.
•
Steady household spending growth backed by real incomes and relatively firm labour
markets will be accompanied by a decent performance in public and private investment
to result in a projected 1.1% expansion in 2026 that picks up to 1.5% in 2027.
•
The Eurozone certainly avoided the worst feared of tariffs, but the U.S.’s 15% duty on
most E.U. imports will still dampen external supports for Eurozone activity, subduing
investment and hiring plans. We believe the odds of higher tariffs or barriers to U.S.-E.U.
trade are significantly higher than those of a rolling back of current measures.
•
Trade and geopolitical tensions with the U.S. also come at an inopportune time for
political stability in the E.U., with German and French leaders on fragile footing. Regional
elections in Germany and general elections in Hungary that await in 2026 will test
European unity.
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