Economic Buzz: Forward-looking indicators suggest that growth is likely to remain modest in near term, says ECB

European Central Bank (ECB) stated in its latest monthly bulletin today that Euro area GDP was unchanged in the first quarter of 2026, but expanded by 0.3%, quarter on quarter, excluding volatile Irish data. Domestic demand weakened in the first quarter, as private consumption growth slowed slightly and investment fell – mainly in construction. Incoming data suggest that the war in the Middle East had contained but uneven effects on activity in the second quarter, with notable differences across sectors.

Consumer-related services were the most affected, although survey evidence points to a partial recovery following the initial shock. By contrast, digital services and the manufacturing sectors remained resilient despite higher energy prices and elevated uncertainty. This resilience partly reflects an increase in investment related to artificial intelligence (AI) and firms building up inventories to mitigate supply chain risks as well as increased defence spending.

ECB noted that the labour market remained resilient overall but has lost momentum, with short-term indicators suggesting weaker employment momentum in the second quarter of 2026. Forward-looking indicators suggest that growth is likely to remain modest in the near term. Uncertainty remains elevated amid a return to military operations in the Middle East following the temporary ceasefire.

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