Eurozone finance ministers said the euro area economy has remained “resilient” after an energy price shock, but higher energy costs are now expected to weigh on growth and push inflation up in 2026.
In a statement on the euro area fiscal stance, the Eurogroup said the European Commission’s Spring Forecast expects economic growth in 2026 to be slower than previously anticipated, before a moderate recovery in 2027.
Inflation is forecast to reach 3.0% in 2026 because of higher energy prices, before easing in 2027 towards the European Central Bank’s 2% target.
Uncertainty around the economic outlook remains “very high”, with risks to growth “tilted to the downside”, according to the Eurogroup.
A memorandum of understanding signed on 17 June between the US and Iran to extend a ceasefire should help reduce those risks.
The Commission’s forecast expects the euro area’s aggregate budget deficit — the gap between government spending and revenue — to rise to 3.3% of GDP in 2026 and 3.5% in 2027.
Public debt is also expected to increase to 90.2% of GDP in 2026 and 91.2% in 2027.
Deficits, debt and the 2026 budget stance
Measures introduced by most euro area countries to mitigate the effects of the conflict in the Middle East have so far cost less than 0.1% of GDP on aggregate, the Eurogroup said.
It added that such measures should be temporary and targeted at vulnerable households and affected businesses.
After being broadly neutral in 2025, the euro area fiscal stance — the overall direction of budget policy — is expected to become mildly expansionary in 2026, driven by the EU’s Recovery and Resilience Facility and by higher national current spending and nationally financed public investment, including for defence.
A “neutral to mildly expansionary” stance appears appropriate, while a more expansionary approach in 2026 would not be appropriate.
In 2027, assuming no policy changes, the euro area fiscal stance is projected to be broadly neutral, with growing public investment, especially for defence, partly offset by a contractionary effect as the Recovery and Resilience Facility ends.
With deficits and debt at high levels, the Eurogroup reiterated a commitment to fiscal sustainability and urged member states to follow net expenditure paths recommended by the Council.
It also encouraged countries at risk of non-compliance with the Stability and Growth Pact — the EU’s fiscal rules — to take additional consolidation measures, while noting flexibility under a national escape clause for defence that has been activated by the Council for 14 euro area member states.
The Eurogroup said it will continue to monitor economic and fiscal developments and will review euro area budgetary policies in December, informed by the Commission’s opinions on draft budget plans for 2027.
