Investing.com — Euro area growth faces mounting pressure from the Middle East conflict and tighter financial conditions, with the European Central Bank expected to hold its benchmark deposit rate at 2% at its March 19 meeting, Barclays Research said in a recent note.
The brokerage projected euro area real GDP growth slowing to 1.1% in 2026 from 1.5% in 2025, while headline inflation rises to 2.4% this year, up 0.6 percentage points from December projections, before easing to 2% in 2027.
Barclays’ nowcasting model pointed to euro area GDP contracting 0.1% quarter-on-quarter in the first quarter of 2026, below both its own forecast and the ECB’s projection of 0.3% expansion.
“The ECB will do what is necessary to maintain medium-term inflation at target,” Barclays quoted President Christine Lagarde as expected to say at the post-meeting press conference, adding the Governing Council would stress policy rates are “not on a predetermined path.”
Euro area industrial production fell 1.5% month-on-month in January, with Germany contracting 1.3%, Italy 0.6% and Spain 0.5%. German factory orders dropped 11.1% month-on-month in January, reversing almost all gains from the second half of 2025.
In a scenario where stabilises at $100 per barrel and holds at €70 per megawatt-hour, up roughly 40% and 120% since the conflict began, Barclays estimated euro area GDP could be 0.6 percentage points lower at the one-year horizon, with consumer prices rising up to 1.4 percentage points within 12 months.
Barclays said any fiscal response would be “more limited and more targeted” than the measures deployed after Russia’s invasion of Ukraine, when emergency support reached around 3% of nominal GDP.
Among the bloc’s four largest economies, Spain remains the strongest, with Barclays projecting 2.3% growth in 2026. Germany is forecast at 0.9%, France at 1.1% and Italy at 0.7%.
France carries the heaviest fiscal burden, with its deficit projected at 5.2% of GDP in 2026 and government debt rising to 118.6% of GDP.
On trade, the United States opened an investigation into EU trade practices on March 12 to assess whether they contribute to excess manufacturing capacity.
France holds the first round of municipal elections on March 15, with Barclays flagging the performance of Marine Le Pen’s Rassemblement National as a gauge of the party’s standing ahead of France’s 2027 national elections.
