The return of the European growth theme - 6 july 2026

In the scenario of a fairly rapid reopening of the Strait of Hormuz, the ECB considered in mid-June that European growth could move towards 1.5% in 2027 and 2028. Below, we recap the main arguments supporting this rebound scenario and examine the stock market implications.

The energy shock linked to the war in Iran had quickly extinguished the European optimism (an oxymoron?) that had emerged in 2025. A more constructive outlook is now logically reappearing with the fall in oil prices and the gradual normalisation of fossil energy transport flows. The June PMI surveys already reflect this rebound, with the euro area composite PMI returning to 50, after 48.5 in May (chart 1).

By In its latest mid-June forecasting exercise, the ECB’s model projected that, under a favourable scenario involving the reopening of the Strait of Hormuz in Q3, euro area growth would rebound to 1.4% in 2027 and then 1.6% in 2028. Its forecast assumed an oil price of $88 in Q3. However, Brent is already at $70. Barring any new shock, growth of 1.5% in the euro area as early as the end of this year therefore becomes conceivable. After adjusting the statistics to account for the Ireland effect (1), this would be the strongest European growth since the post-Covid period, above the usual estimates of potential growth for the euro area (chart 2).

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(1) Ireland accounts for only around 4% of the euro area, but its GDP can experience very large swings (+8.3% in 2025, -1.2% expected in 2026) depending on the decisions of multinationals domiciled there, such as Google, and shocks affecting its trade with the United States.

These optimistic forecasts, though in our view credible, are supported by several trends.

• Barring any unpleasant surprise from the Persian Gulf, the rebound should begin as early as this summer, driven by a recovery in purchasing power and a return of confidence in the cycle. Inflation was already negative month-on-month in June and had returned to 2% over three months (chart 3). According to the ECB’s forecasts, it should fall slightly below 2% in 2027.

• Despite the ECB’s 25 basis-point rate hike and a moderate rise in long-term rates, the credit cycle remains positive. Bank lending has continued to grow at a solid pace, particularly corporate lending (chart 4). The financial environment remains supportive, with low-risk premia in bond markets and ongoing momentum towards the Europeanisation of finance (Capital Markets Union). Credit demand has not weakened despite the crisis in Iran.

• The AI boom is driving corporate investment spending, which may partly explain the strength of credit. This spending should accelerate thanks to national and European legislation that is more supportive of an issue that has now become one of sovereignty. Various studies (McKinsey, Goldman Sachs, Morgan Stanley) forecast €200–300 billion in spending on data centre construction in Europe by 2035, equivalent to an average of +0.15% of GDP per year.

• Germany’s €1 trillion plan for defence and infrastructure spending over 10 years got off to a slow start, which disappointed what were sometimes somewhat excessive analyst expectations. This kind of plan requires time to prepare, and any acceleration can only be gradual. As last year, the release of a significant share of the funds could take place in the fourth quarter. The governing coalition has also recently agreed on new economic measures, including a €10 billion tax cut in 2027, equivalent to 0.2% of GDP, pending a vote in the Bundestag( ). Expectations for Germany remain high, with the OECD forecasting growth of above 1% in 2027, or twice the usually estimated potential growth rate (chart 5).

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(2) Labour market and pension system reforms are also being proposed. In particular, a “Swedish-style” pension system, including a funded pension component, is for the first time being concretely put on the table.

The favourable impact of these trends will be offset by the negative effect of fiscal consolidation in certain key countries, such as France, Italy and Belgium. However, other better-positioned European countries are in a favourable position to stimulate the economy, including the Netherlands, Denmark and Sweden.

From an equity market perspective, a European economy growing clearly above 1% would be supportive for the most domestic cyclical sectors. Among these, the banking sector, which is sound and already profitable, is the one that could benefit the most. The utilities sector is also heavily involved in Europe’s investment efforts. One can also think of the industries most sensitive to spending on AI, infrastructure and defence, but these are already being largely supported by global demand and are often less specifically European. Consumer services, including retail, should also be considered. As for real estate stocks, which are very domestic, they remain a speculative bet because the scope for rate cuts is limited.

In our view, the two simplest ways to invest in the European recovery theme are: 1) banks, and 2) diversification beyond the AI theme alone. While the Stoxx 600 index includes around sixty stocks benefiting from AI in the broad sense, or 10% of the index constituents, these accounted for nearly 60% of the performance of the equal-weighted Stoxx 600 during the first four months of 2026. Over the past two months, however, with growth expectations improving, non-AI stocks have rebounded sharply (+6.3% on average), contributing 87% of the rise in the equal-weighted Stoxx 600.