UBS has adjusted its near-term growth outlook for the Eurozone after a firmer-than-anticipated expansion in 2025. The Swiss bank raised its 2026 GDP forecast for the currency bloc by 0.2 percentage points to 1.3%, while keeping its 2027 and 2028 projections at 1.4% and 1.0% respectively.
The revision follows data showing the Eurozone economy grew 1.5% in 2025, up from 0.9% in 2024 and above the European Commission's earlier projection of 1.3%. Momentum at the end of last year was stronger than expected, with output rising 0.3% in the fourth quarter of 2025.
UBS describes the change to its 2026 view primarily as a mark-to-market update that reflects the upside surprise in Q4-25 GDP. In a note dated Feb. 6, the bank observed that while comprehensive aggregate data were not yet available, country-level figures indicate domestic demand played a role in supporting the unexpectedly resilient Q4-25 momentum. The note read: "While details on the Eurozone aggregate are not yet available, country data suggest that domestic demand was one driver behind the surprisingly resilient Q4-25 momentum."
Looking ahead, UBS expects several forces to shape growth in 2026 and 2027. The bank anticipates that the negative effects of U.S. tariffs will begin to ease and that fiscal measures oriented toward defence at the EU level and infrastructure in Germany will become "the dominant, and firmly positive economic force in Europe in 2026/27." UBS highlights Germany as likely to benefit most from the visible ramp-up in stimulus.
UBS projects that domestic demand - particularly household consumption and fixed investment - will be the primary driver of Eurozone growth next year. The bank also forecasts that net exports will remain negative in 2026, albeit less so than in 2025.
In quantitative terms, UBS expects government efforts to lift public spending to gain momentum and to contribute an increase of 0.3 percentage points to Eurozone GDP growth in each of 2026 and 2027. Germany alone is expected to account for two thirds of the fiscal boost and to experience a larger uplift of 0.6 percentage points in those years.
UBS notes the timing of the fiscal support is important. Public spending aimed at defence and infrastructure is expected to reach a higher "steady state" by late 2027. At the same time, the stimulus provided by the EU recovery fund (NGEU) is set to fade, meaning the net positive impulse from fiscal policy is likely to moderate substantially in 2028.
The bank cautions that the stronger fiscal impulse over the coming two years is likely to obscure more structural challenges. In particular, deep-seated demographic shifts are already exerting a drag on potential growth across Europe and are expected to become more evident over the medium term. Citing United Nations forecasts, UBS points out that Germany, Italy, Spain and several other European countries are projected to lose between 3.5% and 7% of their working-age populations between 2024 and 2030.
As a result of these adverse demographic dynamics, UBS assesses that Eurozone trend growth - currently estimated at roughly 1.2% per annum - will decline to about 1.0% by 2028, a level that matches the bank's projection for that year. UBS adds that trend growth is likely to fall further after 2028.
Overall, UBS characterises 2026 and 2027 as two relatively favourable years for Eurozone output driven by domestic demand and fiscal support, while underscoring that the longer-term outlook is constrained by demographic headwinds and the eventual tapering of temporary fiscal measures.