1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 69
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
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Monetary policy uncertainty has also emerged, as comfort with the ECB holding steady
has been shaken by speculation that it may be closer to a hike than to another rate cut.
Our base case is that the ECB will hold at 2.00% over the forecast horizon.
Reduced trace 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. The latter, combined with a normalization of
volatile net trade and inventories due to tariffs front-running and lopsided Irish GDP data, will
translate into a weaker expansion in the current year than in 2025, but quarterly growth trends
will be more constructive. 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.
Muted growth in the Eurozone's Top 3
2.9%
% YoY GDP growth, 1Q-3Q25
3%
1.9%
2%
1.5%
1.0%
1%
0.8%
0.6%
0.3%
0%
Germany
Italy
France
Netherlands
Spain
EurozoneEurozone ex. Ireland
Source: Eurostat, Scotia Wealth Management.
In the year to 3Q25 (the latest available data), Eurozone GDP grew by a respectable 1.5% yearover-year (YoY) pace compared to the same period in 2024. Things look softer once Ireland is
excluded, given the country’s volatile data in international trade and investment in relation to tax
and R&D shifts of large pharmaceutical and technology companies. Eurozone growth ex. Ireland
was tracking a 1% YoY expansion over the period (0.5ppts below its Euro-wide pace), reflecting a
more muted though respectable increase in investment of 1.3% (compared to 2.7%, Ireland
included). This investment strength, even excluding Ireland, has been a positive development
against more negative expectations given trade challenges, with the AI-related buildout seen in
the U.S. also present in the Eurozone and standing as a possible tailwind for growth in 2026; ex.
Ireland, Eurozone intellectual property investment rose by 3.6% YoY YTD.
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