Tag: Europe

The ECB keeps Interest Rates on Hold

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Yesterday, and for the third straight meeting, the Governing Council of the ECB (European Central Bank) voted unanimously to keep their key benchmark deposit rate steady at 2.00%. Financial markets were expecting a rate hold, as the ECB kept their three key interest rates* at their lowest level for more than two years. However, sentiment within the governing council is changing as growth is weakening on the downside and price pressures are building on the upside.

*ECB Interest Rates – The ECB has three interest rates, one being the key deposit rate, which as mentioned above was held at 2.00% and is the interest rate banks receive when they deposit monies overnight with the ECB. The other two facilities are the Main Refinancing Operations (rate held at 2.15%) which is the rate the banks pay when they borrow monies from the ECB for one week, and the Marginal Lending Facility (rate held at 2.40%), which is the rate banks pay when they borrow monies overnight from the ECB.

Indeed, officials noted that policymakers within the ECB will probably vote to increase interest rates at their next meeting in June, unless the crisis in the Middle East abates and there are some positive developments on energy prices. Those close to the ECB’s decision, while asking for anonymity, noted that there was little chance of avoiding a rate hike in June, but stressed that the situation is fluid and can change quickly.

President of the ECB, Christine Lagarde, said, “the next six weeks will be the right time to assess the economy in order to make an informed decision on verified and revisited information”. The president went on to say, “we made an informed decision on the basis of yet insufficient information. We debated the decision that we have unanimously taken today, but we also debated at length, and in depth, a decision to possibly hike”.

Experts advise that officials from the ECB have not been convinced from data received the need to tighten monetary policy, with the increasing prices of energy such as oil and natural gas yet to trigger “second round effects”*. In a statement issued by ECB officials, they said, “the upside risk to inflation and the downside risks to growth have intensified. The Governing Council remains well positioned to navigate the current uncertainty”.

*Second Round Effects – In these scenarios second round effects are price and wage-settings stemming from the current shock that have the potential to raise Eurozone inflation beyond the near-term in a persistent manner.

Analysts advise that financial markets suggest that ECB officials will prioritise an upswing in prices (by 3% in April), which are suffering negative effects from the USA/Iran/Israel crisis. Traders have accordingly priced in 75 basis points rise in interest rates by the end of the year. President Lagarde noted that, “there is one element that is going to have a real impact, and that is the duration of the conflict”.

Europe About to Suffer Jet Fuel Shortages

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ACI (Airports Council International) Europe’s director-general, Olivier Jankovec, has warned in a letter to the European Commissioners that, “A supply crunch would severely disrupt airport operations and air connectivity – with the risk of harsh economic impacts for the communities affected, and for Europe”. At this stage, we understand that if the passage through the Strait of Hormuz does resume in any significant and stable way within the next three weeks, systematic jet fuel shortage is set to become a reality for the EU (European Union).

In the week ending Friday 3rd April 2026, the European jet fuel benchmark price was at an all-time high of $1,838 p/tonne as opposed to a pre-conflict price of $831p/tonne. The director-general went to mock the commission for lack of monitoring with regard to jet fuel production and availability, suggesting they should intervene as relying on market forces alone is currently not an option. ACI also urged the commission for the restrictions and regulations on importing jet fuel to be temporarily lifted, whilst advising that the price of jet fuel will remain elevated in the medium to long-term.

Analysts advise that the European politicians and officials did nothing to predict and alleviate the potential shortages of jet fuel, and it is expected that airlines focusing on air travel within Europe will start cutting back on flights. The airline industry is important to the European economies GDP as it contributes EUR 851 Billion and supports 14 million jobs.

Malta AKA Blockchain Island Rails Against Crypto Regulation by the European Union

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The Rise of Blockchain Island

In 2018, Malta earned its nickname of “Blockchain Island” as it became the first country in Europe to produce an in-depth and wide-ranging regulatory framework for distributed ledger technology, crypto and blockchain. Analysts advise that a number of companies relocated to Malta as they felt the island now had the regulatory framework to oversee and understand their business, and this, coupled with a 5% tax rate for some international companies, drew significant attention from the crypto world. Data released by the NSO (National Statistics Office) in Malta shows that in the crypto sector, on-line gaming has provided 14,000 – 15,000 high productivity jobs. 

The MiCA Framework and EU Centralisation

However, in 2023 the EU (European Union) approved a framework known as MiCA (Markets in Crypto Assets) which if enacted has the potential to reduce Malta’s edge in the crypto arena. On July 1st 2026, MiCA is due to come into force and will allow national authorities the ability to grant licences to companies, enabling them to operate across the eurozone. Accordingly, such companies will be regulated under the rules of the EU. Indeed, in 2025 those crypto companies registered in the EU (numbered in the thousands), were contacted and requested to obtain early licences. 

Sovereignty vs. ESMA Oversight

Officials of the EU have advised that in order to make investing a safer proposition and hopefully prompting savers to invest in stocks and bonds, centralisation of crypto oversight under ESMA (European Securities and Market Authorities – based in Paris) is essential. However, experts say Malta is vehemently opposed to this move saying that there is deep jealousy over the islands ability to attract well known crypto companies, therefore accusing the EU of a politically motivated assault. If the EU parliament backs these measures, on July 1st Malta would have to cede direct regulatory oversight to all the big industry names currently doing business on the island.

Political Tensions and French Ambitions

The chief executive of MFSA (Malta Financial Services Authority), Kenneth Farrugia, has said it is not the country’s fault for having stolen a march on their rivals, quoted as saying to them “you should have foreseen where the market was going”. Analysts advise he is particularly upset that by allowing other European countries to develop their crypto markets, EU officials are deliberately disempowering Malta who got there first. Indeed, some political commentators have said that President Macron of France would have no problems disempowering Malta to achieve his own ambitions of ensuring that France becomes the destination of choice by the crypto industry.

Licensing Trends and Regulatory “Shopping”

However, by the end of January this year, only 60% of crypto firms in France had applied for a MiCA licence, with other nations also showing little interest. However, a number of officials opined that it is early days and there is no crisis and nothing we are trying to fix. However, Natasha Cazenave, executive director at ESMA said that under current regulations, firms can go shopping as to which country they wish to plant their flag, then pick out the most advantageous jurisdiction, allowing them to operate in whichever market they choose. The No 2 at the (FSB) Financial Stability Board*, Martin Moloney, said “Being regulated creates opportunity to treat authorisation as a badge of trust, and it is likely that some firms will seek authorisation in small jurisdictions where they can exercise significant power”.

*Financial Stability Board, FSB – Based in Basel, Switzerland, the FSB is an international body that monitors and makes recommendations about the global financial system, promoting international financial stability by coordinating national financial authorities and international standard setting authorities. 

Investigatory Pressure and Global Security Concerns

However, analysts advise that Malta is facing significant problems in their financial sector, with multiple investigations over the last year by American prosecutors, local magistrates, banking regulators and European politicians. Significantly, some of the most powerful nations have suggested that an island as small as Malta’s (circa 450,000 people) could indeed pose serious threats to combating global money laundering and the enforcement of economic sanctions. Experts suggest that perhaps in the back of their minds, EU regulators had Malta’s on-going investigations as one reason to bring crypto regulation under one roof. 

Is the Iran Conflict Affecting Financial Markets Views on Interest Rates

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Analysts advise that last week, the financial markets were very in agreement regarding the ECB (European Central Bank) not increasing interest rates this year, however with the Iran conflict potentially pushing inflation up in Europe, the consensus is now that the ECB could well hike interest rates this year. In fact, money market pricing currently indicates a 100% probability that the ECB will implement an interest rate hike, and this sentiment has led German Bunds (German Government Bonds) to close in on their worst week since 2023. If interest rates are hiked, this will affect the consumer in regard to mortgages, costs of living including electricity, food and gas, plus the cost of borrowings by consumers.

Experts advise that ECB policy makers are wary of a repeat of 2022, when energy prices soared due to the Russian invasion of Ukraine on 24th of February 2022. The resulting inflation spike lasted longer than anticipated, exposing the Eurozone’s vulnerability to energy shocks. As the region relies heavily on gas and oil imports from the Middle East and the U.S. to power its industry and heat homes, it remains highly exposed to global price volatility. However, some experts believe the markets are overreacting, as back in 2022, rates were close to zero and supply chains were severely disrupted. Today, inflation is close to the ECBs target of 2%, and the duration of the conflict is paramount before taking any interest rate decisions.

European Shares’ Winning Streak Keeps on Rolling Upwards 

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Record-Breaking Market Performance

Despite concerns regarding AI disruptions and White House tariffs, recent data released shows that European shares have enjoyed an eight-month streak of gains, and it is confirmed to be the longest monthly streak since 2013. The Stoxx Europe 600 index* is up 4% this month, with data released from EPFR Global** showing US$10 billion being received by European stock mutual funds and ETFs over the last two weeks, and it is also the fourth straight week of inflows. 

*The Stoxx Europe 600 Index – A broad measure of the European equity market, consisting of a fixed number of 600 components. It provides extensive and diversified coverage across 17 countries and 11 industries within Europe’s developed economies, and represents 90% of the underlying investible market. This index is a key indicator for European equities.

**EPFR Global – Formerly recognised as Emerging Portfolio Fund Research, it is a leading provider of global fund flow and asset allocation data for financial institutions. It tracks over $55 trillion in assets across more than 151,000 share classes globally. 

Experts and analysts agree that global investors have been looking at European stocks as a means of diversifying away from US markets, with concerns regarding the economy and the tech market, and additionally an AI bubble. Analysts also advise that US based investors are looking to diversify their portfolios by moving into European equities, which have less “tech” than their peers in the USA. 

Strength in the “Old-Economy” Sectors

Indeed, the composition of the markets in Europe has helped the boom in European shares. With fears of AI disruption in the US, the old-economy sector favourites such as utilities, telecommunications, basic resources and energy have outperformed market expectations, with some posting double-digit returns. Also, in 2025, analysts advised that Germany finally returned to growth for the first time since 2022, and with billions being spent on defence (announced March 2024), feeding through to various industries, German equities will once again become more attractive. 

A Positive Outlook for 2026

Experts advise that the outlook for European equities in 2026 is broadly positive, with total returns ranging between 6% – 13%. Analysts suggest that Europe is entering a “new era” underscored by robust fiscal expansion, especially in Germany, accelerating domestic growth, with investors realigning their portfolios away from expensive US mega-caps. 

Many global investors are looking for cheaper bargains, and according to recent data released, the Stoxx Europe 600 Index is trading at a price-to-earnings-ratio of 18.3, whilst the S&P in the United States is trading at 27.7. Experts suggest that European stocks are being driven by domestic stimulus delivery as well as rotation away from the tech sectors to the non-tech sectors.

Will Sweden Lose the Krona and Adopt the Euro?

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Historical Context and the 2003 Referendum

On January 1st, 1995, Sweden, Finland, and Austria joined the EU (European Union) as part of the fourth enlargement, which expanded its membership to 15. In 1999, the single currency was launched, and although Sweden is legally committed to joining the currency (once certain economic criteria are met), it chose not to, citing concerns about sovereignty, as well as economic and political reasons. In 2003, the government of Goran Persson held a non-binding referendum on Euro adoption, but circa 56% of voters rejected the adoption and ever since, successive governments have respected the result.

Monetary Policy and the ERM II Opt-Out

For economic reasons, Sweden has gone down the path of retaining control over their monetary policy and is one of six member countries of the EU that still prefer to use their own currency, and Stockholm still maintains a floating exchange rate. Furthermore, Sweden has opted out of the Union’s ERM II*, which is a mechanism whereby the Euro’s exchange rate with other eurozone countries’ currencies is managed. It should be pointed out that if an EU member country wishes to adopt the Euro, membership of ERM II is mandatory.

*ERM II – The Exchange Rate Mechanism II (ERM II) was set up on 1st January 1999 as a successor to ERM for those EU member countries outside the Euro area who have their own currencies. This was to ensure that exchange rate fluctuations between the Euro and other EU currencies do not disrupt economic stability within the single market, and to help non-Euro area countries prepare themselves for participation in the Euro area.

Shifting Geopolitical and Economic Landscapes

However, in recent years, analysts suggest that support from the public has grown in favour of adopting the Euro, although experts within this arena say that it would probably take several years to bring adoption to fruition. Officials within the Swedish government have suggested there has been a significant shift in both the geo-economic and geopolitical landscapes since the 2003 non-binding referendum, which has boosted the case for closer ties with the EU.

Global Rivalries and the Case for Integration

Ministers have cited the Russian invasion of Ukraine, which, after many years of non-alignment militarily, prompted Sweden to join NATO and the increasing global influence of China as valid reasons for closer integration with the EU. Furthermore, President Trump’s ‘America First’ policies, marked by disruptive tariffs and threats to annex Greenland, underscore how modern great-power rivalries leave smaller economies increasingly exposed.

Commercial Advantages of the Common Currency

Analysts suggest that on the plus side for adopting the Euro, data released show that over 60% of Sweden’s goods trade is transacted with the EU and only circa 6.4% is with the United States. Therefore, some commentators are suggesting that with 60% of trade being transacted with the eurozone, joining the common currency would eliminate exchange rate fluctuations (which with the Krona can be volatile at times), also eliminating any uncertainty for both importers and exporters. Several senior voices across the economic strata of Sweden are advocating joining the Euro for these very reasons, plus they say that there will be greater commercial benefits across the board rather than clinging to the diminishing advantages of retaining independent monetary policies.

Arguments for Retaining Monetary Independence

However, some experts still oppose adopting the Euro, suggesting that giving up the independence of monetary policy would harm the Swedish economy as interest rates can be set in alignment with domestic conditions, rather than following decisions made by the ECB (European Central Bank). Experts have also voiced concerns that, according to data released, the debt within the euro area is currently 80% of GDP, whereas Sweden’s debt-to-GDP sits at circa 33%. One expert suggests that, given the borrowing trends within the euro area, a common currency collapse is not out of the question.

The Path Forward: Referendums and Elections

However, there will have to be another Euro adoption referendum in order to give any potential switch legitimacy, and whilst the public is warming to an adoption of the Euro, polls suggest that there are more voters against than for the adoption. This coming September, there is a general election and political commentators suggest that any significant movement on this issue will be shelved until a new or the same government is elected.

The ECB keeps Interest Rates on Hold

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The ECB (European Central Bank) recently announced that for the fifth consecutive policy meeting, it was keeping interest rates on hold at 2.00%. Following the meeting, officials noted the economy’s resilience but offered no forward guidance on interest rates, stating instead that future decisions will be strictly data-dependent. 

The Three Key Interest Rates Explained

The ECB manages its monetary policy through three distinct interest rates. First is the key deposit rate, which—as previously noted—was held at 2.00%; this is the interest rate commercial banks receive when they deposit money overnight with the ECB. The second facility is the Main Refinancing Operations (MRO) rate, maintained at 2.15%, which represents the interest banks pay when they borrow funds from the ECB for a one-week duration. Finally, the Marginal Lending Facility was held at 2.40%; this is the rate banks must pay when borrowing from the ECB on an overnight basis. President Christine Lagarde said the ECB would not commit to a particular path for the rate and would maintain its meeting-by-meeting approach and its reliance on data.

Inflation Outlook and Economic Resilience

Data released last Wednesday confirmed that inflation had cooled to below the ECB’s 2.00% target, sitting at 1.7% as of the 31st of January 2026. President Lagarde said, “Our rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it.” ECB officials also advised, “Inflation should stabilise at its 2% in the medium term. The economy remains resilient in a challenging global environment. Low unemployment, solid private sector balance sheets, the gradual rollout of public spending on defence and infrastructure and the supportive effects of the past interest rate cuts are underpinning growth.”

Trade Risks and Growth Constraints

However, future growth may be dragged down, as cautioned by Executive Board Member Piero Cipollonne, who noted last week that there was an increased risk scenario whereby tariffs could curb investment and bring down growth. President Lagarde also noted that challenges still remain, even though the region’s fiscal boost could fuel quicker-than-anticipated growth. She went on to say, “Further frictions in international trade could disrupt supply chains and reduce exports and weaken consumption and investment”.

Currency Fluctuations and Market Sentiment

Market experts indicate that recent rhetoric from the ECB suggests the Governing Council is broadly satisfied with the current state of the economy, inflation levels, and interest rate positioning. There may be some concern that the Euro has broken through the $1.20 threshold, as it was sitting at $1.1812 not long before, and global investors have taken a more cautious stance regarding U.S. assets. Officials have advised they are keeping a close watch on the currency’s advance, with the Governor of the Banque de France, Villeroy de Galhau, noting that the currency’s path will help guide future decisions. Analysts advise that financial markets have adopted a wait-and-see policy, as some traders feel that interest rates will remain steady for the next eighteen months to two years.

European Central Bank Holds Interest Rates

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ECB Rate Decision and Market Reaction

Yesterday, the ECB (European Central Bank), for their fourth straight meeting, held its benchmark deposit rate* at 2% with the Euro essentially unchanged at $1.1740, but declined slightly against the Swiss Franc by close of business by 0.32%. The decision by policymakers was unanimous and in line with market expectations, and the President of the ECB, Christine Lagarde, was noted as saying that there had been no discussions regarding rate cuts or rises. Experts in this area say that ECB officials have indicated that, given the outlook for inflation and economic growth, quantitative easing, in the form of interest rate cuts, is likely to be finished.

*ECB Interest Rates – The ECB has three interest rates: the key deposit rate, which, as mentioned above, was held at 2.00% and is the interest rate banks receive when they deposit money overnight with the ECB. The other two facilities are the Main Refinancing Operations (rate held at 2.15%), which is the rate the banks pay when they borrow money from the ECB for one week, and the Marginal Lending Facility (rate held at 2.40%), which is the rate banks pay when they borrow money overnight from the ECB.

Inflation Outlook and Economic Uncertainty

Officials advised that they are now expecting annual inflation for 2026 to be in the region of 1.9% as opposed to their earlier prediction of 1.7%, which is due to elevated price increases in services, which will be falling more slowly than was predicted. President Lagarde followed this up by saying that the inflation outlook was more uncertain than usual due to the vagaries of the volatile international environment. Indeed, in a statement by the ECB, it was announced that an uncertain global outlook would push down growth within the eurozone, and officials renewed appeals for governments within the EU (European Union) to push ahead with reforms to make the economy more competitive and efficient.

Future Growth Drivers and Inflation Expectations

In a further announcement, President Lagarde said that in the years ahead, domestic demand will be the main engine of expansion. She went on to say, “Business investment and substantial government spending on infrastructure and defence should increasingly underpin the economy. However, the challenging environment for global trade is likely to remain a drag. Inflation should decline in the near term, mostly because energy prices will drop out of the annual rates, and it should then return to target in mid 2028, amid a strong rise in energy inflation.”

Overview of the Eurozone Economy 2026

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Based on forecasts from experts and analysts this month, the eurozone economy is expected to see modest, stable growth in 2026. Such growth will be driven by domestic demand, with inflation close to the ECB (European Central Bank) target of 2%, with various models showing an inflation rate of between 1.8% to 1.9%. It is expected that the zone will continue to enjoy low unemployment; however, the outlook is clouded by persistent global trade tensions, persistently high government debt levels, and heightened geopolitical risks.

Germany

Analysts suggest that over the next ten years, Germany will run an annual budget deficit of circa 4% of GDP, increasing its debt-to-GDP ratio by between 20 and 30 percentage points. However, Germany has a current debt ratio of under 65% and it is felt that in 2026, there is little to worry about regarding the country’s fiscal health, with an estimated growth in GDP of 1.2% – 1.4% due to increased spending on defence and infrastructure. This is higher than predictions made earlier in 2025, where the figure was circa 0.8% in potential growth. Experts predict that the government will use part of its fiscal package to invest in technology-related growth areas (less susceptible to trade tensions), rather than relying on traditional industries such as auto manufacturing.

France

Experts predict that the French economy will grow modestly at about 0.9% (below the eurozone average), against a backdrop of rising unemployment, political instability, and fiscal uncertainty, reflecting a government budget that has already failed to pass through parliament four times this year. Inflation has been forecasted to rise to circa 1.30% – 1.60%, which analysts have attributed to higher energy and food prices. Public debt is set to increase to 120% of GDP by the end of 2026, whilst the government deficit is expected to decline to circa 4.9% of GDP.

It is expected that a rebound in the services sector will offer some relief, whilst currently the industrial sector is on the wane, especially in the aeronautical market. On the domestic front, budget uncertainty and political instability have had a negative impact on business and consumer confidence; however, the economy on the whole is shielded from many global trade issues due to a more diverse export profile.

Spain

Predictions for growth in the Spanish economy are somewhat at variance with analysts and experts who predict growth from anywhere between 1.9% (OECD – Organisation for Economic Co-operation and Development) to 2.3% (European Commission). Growth will be primarily driven by strong investment and private consumption supported by purchasing power gains and employment growth. Experts suggest that inflation is expected to be moderate and hit an average of 2.0%, with drivers being a reduction in energy inflation as well as a moderate decrease in the price of food. The housing market is expected to continue enjoying the current upward trend, which is being driven by a fall in interest rates, population growth, improved purchasing power, and buyers from overseas.

The government budget deficit is expected to decrease to 2.1% of GDP, and the debt-to-GDP ratio is expected to fall below 100% for the first time since 2019. According to several analysts, negative impacts on growth are expected from global uncertainty, which may be driven by weaker economic activity among some of Spain’s key trading partners in the eurozone and tensions in the global trading arena. However, the continued implementation of the NGEU (Next Generation EU Funds) will help boost investment, particularly in construction and urban renewal.

The Netherlands

Experts suggest that in 2026 the Dutch economy will experience a decline in growth with predictions of a circa 1.00% – 1. 30% increase, primarily driven by strong domestic demand from household consumption and government investment and spending. On the domestic front, household consumption and government spending are expected to be the main drivers of economic growth, supported by rising real wages and public investment programmes. Inflation is expected to gradually recede but will remain above the eurozone average of 1.8% – 1.9%, mainly due to prices in the services industry and potential tax changes. The government deficit is predicted to widen to around 2.70% of GDP, whilst public debt is expected to remain below 50% of GDP.

On the unemployment front, the labour market is expected to remain tight with unemployment only marginally rising between 4.0% – 4.2%. Negative impacts on growth are expected from exports and business investments, which are projected to be suppressed by ongoing global uncertainties, including trade tensions and a political landscape with the potential to impact long-term investments in defence, energy, and housing. Indeed, geopolitical uncertainty and potential US tariffs on imports of EU goods pose a significant downside risk to the Dutch economy, which is highly export-oriented, and any escalation could lead to a reduction in export growth and reduced business investment.

Italy

Analysts predict that in 2026, the Italian economy will enjoy a modest growth in GDP of circa 0.80%, driven by public investment from the NRRP (National Recovery and Resilience Plan), with growth also being driven by domestic demand rather than by net exports. Predictions for inflation in 2026 vary, with the European Commission anticipating a figure of 1.30% whilst the OECD and the IMF (International Monetary Fund) predict figures of 1.80% and 2.00% respectively. The government deficit is projected to recede to an estimated figure of 28% of GDP, whilst estimates vary for gross public debt, with the IMF and the European coming in at 137.90% and 138.30% respectively of GDP.

Experts suggest that a negative impact on growth may come from the employment sector, where declining labour productivity is a persistent issue for the Italian economy. Global factors such as geopolitical tensions, potential trade tariffs from the United States, and weaker demand in key European markets will also pose risks to Italy’s growth and export performance. Analysts expect Italy’s net external trade to have a slight negative impact on growth, as imports are likely to outpace exports in 2026.

Greece

Analysts predict the Greek economy is projected to continue its GDP growth in 2026, with the European Commission expecting a figure of circa 2.20%, whilst the Greek Fiscal Council estimates a growth figure of 2.40%. Growth is expected to be driven by domestic consumption and government investment supported by European Union funds. Inflation is expected to decrease to circa 2.30% to 2.40% whilst unemployment is predicted to fall to approximately 8.6%. Also, the debt-to-GDP ratio is expected to continue its downward path, falling below 140% by year-end 2026. The European Commission has predicted that the government’s general balance is expected to be a surplus of 0.3% of GDP.

Positive factors that may influence growth are EU funds, including RRF (Recovery and Resilience Facility), that are expected to support investment and consumption, and the government’s final budget for 2026 includes a focus on tax reform and social support to boost growth and household incomes. Several analysts have suggested that tourism will continue its strong performance into 2026 and is expected to be a significant driver of the Greek economy. It should be noted that under the EU RRF, the Greek government is under pressure to complete projects by the August 2026 deadline, or else funds may be withdrawn.

Belgium

Experts suggest that the outlook for the Belgian economy in 2026 is one of moderate growth with estimates around the 1.10% – 1.20% mark. This marks a gradual recovery from 2025, where growth, according to data released, is currently at 1.00% and growth is expected to be supported by a rebound in exports, moderating wage growth and a pick-up in import demand. However, this is dependent on political stability and the effective implementation of structural reforms to address fiscal challenges, plus a potential risk from a slower-than-expected recovery in demand from the European Union.

Inflation is expected to reduce to circa 1.60% – 1.80% due to lower prices of goods and energy, whilst the unemployment rate has been projected as a small increase to 6.20% due to a short-term consequence of reforms in both the labour market and pension arena. Analysts advise that the budget deficit is expected to rise to 5.5% GDP, mostly due to increased spending in the defence sector and rising interest payments on the public debt, which is predicted to continue upward to circa 109.80% of GDP.

Key economic drivers for 2026 are increased investment, where analysts advise that gross fixed capital formation is expected to rebound, supported by improved financial conditions. Further boosts to investment will come in the form of significant public expenditure on infrastructure projects financed by the European Union’s RRF, plus increased spending on the defence sector. Increased export growth is predicted for 2026, helped by improving cost competitiveness; however, as with other countries, U.S. tariffs and continuing trade uncertainty could dampen the outlook for exports to the United States and key eurozone partners.

Turkey

According to a number of financial commentators, the outlook for the Turkish economy is a continuation of the disinflation process, along with a moderate and resilient GDP growth, which is expected to grow by 3.80% rising to USD 1.84 trillion. Inflation forecasts suggest a figure of 23% by the end of 2026, with the central bank setting a target of 20% for the same period. The economy of Turkey is expected to maintain its monetary easing cycle throughout 2026; however, the government must guard against key risks, which are domestic political uncertainty and persistent inflationary pressures. The budget deficit is expected to narrow, with the World Bank advising a figure of 3.60% of GDP, with other projections suggesting that the labour market will remain stable.

Positive signs for the economy are the continued implementation of orthodox economic policies by the government, which is seen as crucial for restoring fiscal discipline and reducing inflation. Furthermore, the government’s medium-term economic programme outlines structural reforms aimed at transitioning towards high-value-added industries and a green economy.

Poland

Experts are predicting that in 2026, the Polish economy will continue its strong growth, forecasting a growth rate of 3.50% of GDP, supported by public investments and European Union funds. The forecast for inflation is expected to be in the region of a decrease of 2.90% – 3.80%, whilst wages are expected to rise by circa 7.60%. However, due to persistent government spending, the public debt-to-GDP ratio is expected to increase in 2026, whilst rising further to 70% in 2027.

There are several risk factors to be considered, and whilst the absorption of EU funds is critical for growth, the successful implementation depends on meeting certain reform requirements. On the fiscal front, excessive government spending, especially on social and defence programmes, is increasing debt levels and putting pressure on the budget, despite fiscal consolidation plans by the government. As already advised, inflation is expected to fall, but persistent wage growth and other price pressures could have a negative impact on reducing inflation.

In 2026, the Polish economy is expected to outperform the European Union average, with primary drivers being strong domestic demand based on rising wage growth and significant public investment financed by EU funds, especially RRF (Recovery and Resilience Facility). However, as mentioned above, the government cannot afford to miss the deadline.  The national currency (Zloty) is expected to remain stable, benefiting from prospects of strong growth. However, predictions may well be subject to external pressures such as geopolitical tensions and global trade policy, where U.S. tariffs could potentially affect demand from Germany.

On the equities front, analysts suggest that the outlook for the Eurozone in 2026 is one of cautious optimism, with modest gains being driven by strategic spending and attractive valuations, but caution is advised due to a strong euro and political uncertainty. European equities are trading at a significant discount compared to their counterparts in the United States, making them an attractive option for investors. The ECB (European Central Bank) has finished (or just about finished) its quantitative easing or rate-cutting cycle, with many analysts predicting that rates will remain stable at 2% throughout 2026, and an environment containing stable rates is usually conducive and supportive of equity markets.

S&P Global Ratings Downgrade France’s Sovereign Credit Score

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In a move that surprised bond markets, S&P Global Ratings (Standard & Poor’s), one of the world’s leading credit agencies, announced on Friday, 20th October, that it had downgraded France’s sovereign credit rating from AA- to A+. S&P had originally been expected to review France’s rating next month, but brought its decision forward, citing growing fiscal concerns, particularly the suspension of the government’s controversial pension reform by parliament. Last week, the government narrowly survived a no-confidence vote after agreeing to opposition demands to halt President Macron’s pension changes, a political compromise that, according to analysts, preserved the government’s stability at the expense of fiscal reform.

France has now lost two of its AA- ratings in quick succession, with both Fitch and S&P lowering their assessments. Moody’s is scheduled to review France’s credit score of Aa3 (the lowest in the double-A category) on Friday 24th October. Experts warn that French bonds could become more vulnerable as downgrades come faster than markets anticipated. Following S&P’s decision, French government bonds came under pressure, with yields on the 10-year bond rising by three basis points to 3.39%, while German 10-year yields increased by one point. A key gauge of risk — *the French-German 10-year bond spread has widened sharply, nearing 90 basis points earlier this month, up from just over 50 basis points before Macron’s snap legislative election in 2024.

*French-German 10-Year Bond Spread – this is an important indicator of market risk, comparing France’s borrowing costs to those of Germany, the Eurozone’s benchmark “safe” borrower. A widening spread indicates that investors are demanding higher returns for holding French bonds, reflecting increased concern about France’s fiscal health or political uncertainty.

The hung parliament resulting from President Macron’s snap elections on 30th June and 7th July 2024 has created a political stalemate that has driven up bond yields (now among the highest in the Eurozone). These pressures have been further exacerbated by S&P’s downgrade. France’s public debt currently stands at around 113% of GDP, with S&P forecasting it could rise to 121% by 2028. The agency warned that the country’s economic outlook (the Eurozone’s second-largest economy) remains uncertain ahead of what could be France’s most pivotal election in decades in 2027.

Another challenge for French bonds is that, with the rating now below the AA threshold, some funds bound by “ultra-strict investment criteria” may be forced to sell their holdings, pushing yields higher. However, analysts note that most funds will likely continue to hold French government debt. Some fund managers, anticipating the downgrade, have already amended their internal rules, reportedly in response to client demand, to allow holdings of A-rated French securities.

Overall, analysts warn that France faces significant fiscal challenges, including a large public deficit and mounting national debt. Two major rating downgrades in quick succession highlight investor concern about rising borrowing costs. While inflation remains low and France retains economic strengths in services, tourism, and technology, a lack of political consensus on structural reforms and budget discipline is hampering progress. The draft 2026 budget, which includes tax rises and a surtax on large corporations, faces fierce opposition both from parliament and the public, underlining how difficult it will be for the government to stabilise the nation’s finances.

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