Overview
Barclays Research says the euro area economy is under renewed pressure from the Middle East conflict and from tighter financial conditions, prompting the bank to cut its growth forecast for 2026 and to expect the European Central Bank to pause further tightening. Barclays projects euro area real GDP growth to slow to 1.1% in 2026, down from an estimated 1.5% in 2025. At the same time, the brokerage now sees headline inflation rising to 2.4% this year - an upward revision of 0.6 percentage points from its December projection - before easing back to 2.0% in 2027.
Monetary policy outlook
Barclays expects the ECB to hold its benchmark deposit rate at 2% at the March 19 governing council meeting. The bank's note includes an anticipated comment from ECB President Christine Lagarde that "The ECB will do what is necessary to maintain medium-term inflation at target," and that the Governing Council would emphasize policy rates are "not on a predetermined path." Barclays' own nowcasting model points to a contraction in euro area GDP of 0.1% quarter-on-quarter in the first quarter of 2026, a weaker result than both Barclays' previous forecast and the ECB's projection of a 0.3% expansion.
Activity and industry data
Industrial data have shown signs of weakness going into the new year. Euro area industrial production fell 1.5% month-on-month in January, with declines in Germany (-1.3%), Italy (-0.6%) and Spain (-0.5%). Germany also saw a sharp drop in factory orders, down 11.1% month-on-month in January, a move Barclays says reverses almost all gains recorded in the second half of 2025.
Energy-price risk scenario
Barclays set out a scenario in which Brent crude oil stabilises at $100 per barrel and the TTF natural gas price holds at 70 per megawatt-hour - levels that Barclays notes are roughly 40% and 120% higher respectively since the start of the conflict. In that scenario, the bank estimates euro area GDP could be 0.6 percentage points lower at the one-year horizon, while consumer prices could be up to 1.4 percentage points higher within 12 months.
Fiscal response and sovereign positions
Barclays expects any fiscal response to be "more limited and more targeted" than the broad emergency measures deployed following Russia's invasion of Ukraine, when emergency support reached around 3% of nominal GDP. The bank highlights France as carrying the heaviest fiscal burden in the bloc, projecting a deficit of 5.2% of GDP in 2026 and government debt rising to 118.6% of GDP.
Country-level growth projections
Among the euro area's four largest economies Barclays continues to see a mixed picture. Spain is forecast to be the strongest in 2026 with growth of 2.3%. Germany is projected to expand by 0.9%, France by 1.1% and Italy by 0.7%.
Trade and political developments
On trade policy, Barclays notes that the United States opened an investigation into EU trade practices on March 12 to evaluate whether those practices are contributing to excess manufacturing capacity. On the political calendar, France holds the first round of municipal elections on March 15, with Barclays pointing to the performance of Marine Le Pen's Rassemblement National as an indicator of the party's standing ahead of the 2027 national elections.
This analysis presents Barclays Research's forecasts and scenarios as reported in the bank's note. Data points cited include growth and inflation projections, monthly industrial statistics, a specified energy-price stress scenario, fiscal ratios, and recent policy and political developments.