The European Central Bank looked into the state of economic health of the euro zone on Thursday, and the diagnosis is hardly favorable. Under the effect of the war in Iran, the patient’s constants are deteriorating, according to Eurostat, which notes a stagnation of economic growth in the euro zone at 0.1% in the first quarter, compared to 1.5% in 2025. Not only were the Europeans not warned of the launch of Trump’s offensive launched on February 28, but they must now pay the bill.
Among the most affected countries: France, whose GDP stagnated in the first quarter according to INSEE, in connection with “a decline in investment in construction” which adds to the effects of the war. While our country had survived with slightly positive growth rates during previous periods of high inflation, when Germany entered into recession, it is now suffering more than its neighbor.
Our neighbors are more resilient
Across the Rhine, growth showed a positive result of 0.3% in the first quarter, up slightly compared to forecasts. However, Berlin is not getting excited and is preparing for difficult times, revising its growth forecast for 2026 from 1 to 0.5%. Especially since exports are driven by an industrial sector that is particularly sensitive to rising energy costs. Our Spanish and Italian neighbors are also resisting the effects of the conflict in Iran better than we are. Spain posted an insolent growth of 0.6%, notably thanks to better productivity and strong domestic consumption, Italy came away with 0.2% growth thanks to the economic fallout from the Milan-Cortina Olympics.
Among the countries most affected: France, whose GDP is stagnating
In this context of slowing activity and resuming inflation – a phenomenon of stagflation – the major financiers of the euro zone are choosing not to change the ECB deposit rate, set at 2%, but are preparing for a tightening in June with an increase to 3%. The boss of the Austrian central bank, Martin Kocher, pessimistic, notes that “the inflation outlook has deteriorated” and that“therefore it is possible that we will face prolonged inflation”.
In April, the increase in prices in Europe is driven by the prices of energy (+ 10.9%), services (+ 3%), food, alcohol and tobacco (+ 2.5%), and this is expected to last. The major financial players agree on this gloomy outlook: the Banque de France forecasts inflation which could reach 3% in 2026, Société Générale expects a peak in 2027 at 3.5%, worse, Morgan Stanley envisages that inflation could even reach 4%.
