Economic prospects in the euro area are coming under increasing strain from the conflict in the Middle East and tighter financial conditions, according to a recent note from Barclays Research. The bank expects the European Central Bank to leave its key deposit rate unchanged at 2% at the March 19 policy meeting.
Barclays now forecasts eurozone real GDP growth of 1.1% in 2026, down from 1.5% expected for 2025. At the same time, headline inflation is projected to rise to 2.4% this year—0.6 percentage points higher than the brokerage’s December estimate—before easing back to around 2% by 2027.
According to Barclays’ nowcasting model, the eurozone economy could contract by 0.1% quarter-on-quarter in the first quarter of 2026, weaker than both the bank’s own forecast and the ECB’s projection of 0.3% growth.
“The ECB will do what is necessary to maintain medium-term inflation at target,” Barclays expects President Christine Lagarde to reiterate during the press conference following the meeting. The Governing Council is also likely to emphasize that policy rates are “not on a predetermined path.”
Recent economic indicators point to weakening momentum in the region’s industrial sector. Euro area industrial production fell 1.5% month-on-month in January, including declines of 1.3% in Germany, 0.6% in Italy and 0.5% in Spain. In Germany, factory orders plunged 11.1% from the previous month, reversing most of the gains recorded in the second half of 2025.
Barclays outlined a scenario in which Brent crude stabilizes around $100 per barrel and TTF natural gas remains near €70 per megawatt-hour—roughly 40% and 120% higher respectively since the start of the conflict. Under these conditions, the bank estimates eurozone GDP could be about 0.6 percentage points lower after one year, while consumer prices might increase by as much as 1.4 percentage points within 12 months.
The bank also suggested that any fiscal response from governments would likely be “more limited and more targeted” than the measures implemented after Russia’s invasion of Ukraine, when emergency support amounted to roughly 3% of nominal GDP.
Among the eurozone’s four largest economies, Spain is expected to remain the most resilient, with Barclays projecting growth of 2.3% in 2026. Germany’s economy is forecast to expand by 0.9%, France by 1.1% and Italy by 0.7%.
France is also seen facing the heaviest fiscal pressures, with its budget deficit expected to reach 5.2% of GDP in 2026 and public debt rising to 118.6% of GDP.
On the trade front, the United States launched an investigation on March 12 into EU trade practices to determine whether they contribute to excessive manufacturing capacity.
In the political arena, France will hold the first round of municipal elections on March 15. Barclays highlighted that the performance of Marine Le Pen’s Rassemblement National could serve as an indicator of the party’s momentum ahead of the country’s presidential election in 2027.
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