European Views Economic Resilience vs Energy Risks

Economics Research 24 July 2026 | 6:01PM BST

European Views: Economic Resilience vs Energy Risks

1. The Euro area economy has so far turned out more resilient to higher energy prices Sven Jari Stehn | than anticipated. The activity surveys initially dropped sharply but have shown Goldman Sachs International

significant recovery, including consumer confidence, the national business surveys and the July flash PMIs. The hard data have also remained surprisingly resilient, especially on the industrial side. While volatile Irish data have distorted the Euro area GDP numbers, our Q2 GDP tracking has climbed to 0.3% (or 0.2% excluding Ireland).

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Exhibit 1: The Activity Data Have Been More Resilient than Expected

Source: Goldman Sachs Global Investment Research, Bloomberg, S&P Global Market Intelligence

2. German fiscal policy has continued to expand, with the latest spending and deficit numbers again exceeding our expectations. As a result, we remain comfortable with our estimate of a 0.6pp fiscal boost to German growth this year. Our financial conditions index tightened significantly with the onset of the war but is now only slightly tighter than before the conflict. Bank lending conditions have deteriorated on the back of increased risk perceptions, but less so than expected in Q2. Taken together, fiscal policy and financial conditions remain broadly growth-supportive despite the war.

Exhibit 2: Fiscal Policy Support Outweighs Small Drag from Financial Conditions

Source: Goldman Sachs Global Investment Research, Haver Analytics

3. Importantly, inflation has risen notably less than expected. Euro area HICP inflation surprised again to the downside in June, as core inflation slowed to 2.4% and measures of underlying inflation softened. Inflation surveys have likewise cooled, after rising sharply in March and April, while indicators of wage pressures have remained subdued. So far, the inflation data are not showing signs of significant indirect effects from the energy shock, let alone signs of second-round wage effects. This mirrors the recent