Europe’s Economy poised for steady growth in 2026 fueled by AI adoption, global trade and consumer resilience

Europe’s economy is expected to maintain a steady pace of growth in 2026, supported by lower inflation, declining interest rates, resilient consumer demand, and supportive fiscal policy, according to the Mastercard Economics Institute’s Economic Outlook 2026 report. Within Europe, the Eurozone is forecast to expand by 1.2%, with inflation easing to an average of 1.8% due to lower energy prices, a stronger euro, and more affordable imports from Mainland China.

Key findings from the report include:

• Eurozone growth is expected to gradually pace and expand by 1.2% in 2026, with the strongest acceleration expected in Germany (from 0.3% in 2025 to 1.2% in 2026), and Southern Europe (2.1% in Spain). As the external sector adjusts to tariffs, easing inflation — expected to average 1.8% in 2026 — lower interest rates and resilient labour markets will bolster the domestic economy. Labour markets remain resilient, with employment continuing to expand and unemployment rates near historic lows, even in countries where rates have edged up slightly, such as Germany. 
• Regional highlights: In the UK, GDP is forecast at 0.9%, down from 1.5%, with consumer spending shifting toward experiences, electronics, and fashion. Central and Eastern Europe is seeing a recovery, particularly in Poland, Czechia, Hungary and Romania, supported by rising consumption and interest rate cuts. Meanwhile, the Nordics and Switzerland are expected to benefit from growth in luxury tourism, with high-end hotels capturing a larger share of consumer spending.
• Mindful European consumers prioritize smaller indulgences. Despite strong fundamentals, consumers remain mindful, splurging on groceries and other small-ticket indulgences, while shying away from big-ticket items (furniture, electronics). Small-ticket categories include apparel, cosmetics, discount stores, digital & in-person entertainment, land travel and restaurants.
• SME digitalization accelerates. In Europe, small and medium enterprises (SMEs) are undergoing a structural transformation driven by digital adoption and sectoral realignment. 
• AI adoption and fiscal expansion will play an important role in the 2026 economy. AI adoption is moving from experimentation to integration, supported by significant infrastructure investment. According to MEI Enthusiasm Index, Denmark leads in Europe. Looking ahead, deeper AI integration and targeted fiscal stimulus will be key drivers of global growth in 2026.

Natalia Lechmanova, Chief Economist Europe at Mastercard Economics Institute, says: "Europe’s economy in 2026 is set to grow steadily supported by lower inflation, lower interest rates and resilient labour market, but performance will diverge along fiscal lines. Germany will experience a meaningful acceleration led by fiscal expansion, while growth will be more subdued in countries where fiscal policy is more restrictive, such as France, Italy or the UK. Performance is set to remain resilient across southern Europe and Central and Eastern Europe.”

“European consumers are benefiting from strong fundamentals but remain cautious and selective, focusing on experiences and small-ticket spending, supporting resilient domestic demand. SMEs are increasingly going digital, reshaping retail across the region, and AI adoption is moving from experimentation to full integration, driving productivity and growth. These trends point to a resilient and evolving European economy.

ENDS