The European Central Bank (ECB) has released its latest projections for the euro area economy, forecasting real GDP growth of 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028. Inflation is expected to average 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. The ECB also raised its interest rates by 25 basis points in September to ensure that inflation stabilizes at its 2% medium-term target.
The ECB's President, Christine Lagarde, emphasized the importance of artificial intelligence (AI) in shaping the economy, noting that it has the potential to transform production processes, business models, and structures across the entire economy. However, the overall macroeconomic effect of AI is uncertain and will depend on various factors, including adoption rates, investment, and labor market dynamics.
Lagarde highlighted the need for Europe to create the conditions for AI to raise productivity and living standards, while also ensuring its AI sovereignty. This includes enabling innovation in AI, building greater independence in critical parts of the AI value chain, and deploying AI intensively and broadly.
The ECB's projections also show that energy inflation rose to 14.3% in August, after 10.3% in July, while food inflation decreased from 1.2% to 1.1%. Inflation excluding energy and food edged down to 2.4% in August, from 2.5% in July.
The labor market remains robust, with unemployment standing at 6.4% in July, although growth in employment and the labor force continues to slow. Productivity has gradually picked up, and wages do not show a material response to the energy shock.
Overall, the ECB's projections suggest that the euro area economy is expected to continue growing, albeit at a moderate pace, with inflation remaining above the ECB's target. The bank's decision to raise interest rates is aimed at ensuring that inflation stabilizes at its medium-term target, while also taking into account the potential risks and uncertainties associated with AI and other factors.