European Economies Show Growth Amid Inflation and Interest Rate Changes

European economies are displaying varied growth forecasts amid inflation and changing interest rates, with significant implications for the banking sector. According to the OECD, real GDP growth in the eurozone is projected to ease from 1.3% in 2025 to 1.2% in 2026, before rising to 1.4% in 2027.

Ireland is expected to lead the OECD countries with a remarkable growth rate of 10.2% in 2025, primarily driven by front-loaded pharmaceutical exports before the implementation of US tariffs. In contrast, Finland is predicted to experience no growth in 2025 due to weak consumer confidence and a decline in housing construction.

The OECD also forecasts that Spain will achieve a growth rate of 2.2% in 2026, the highest among Europe's top five economies, supported by strong job creation and effective investment strategies. Germany and France are projected to grow by 1% each, while Italy lags behind at 0.6%.

By 2027, Spain is expected to maintain its lead among the top five economies, with a growth forecast of 1.8%, while Turkey is projected to grow at 4%, despite potential impacts from higher tariffs. The report emphasizes the importance of improved financial conditions, ongoing capital spending from the Recovery and Resilience Facility, and resilient labor markets in supporting these growth trajectories.

However, challenges remain, including global insecurity and fiscal consolidation, particularly affecting nations like Finland, which anticipates a gradual recovery with growth rates of 0.9% in 2026 and 1.7% in 2027.

The implications for banks operating within these economies are significant, as they must navigate the evolving landscape shaped by these growth forecasts and associated risks.