Recent data released by the European Union's statistics office on April 30 indicates that economic growth in the Eurozone slowed in the first quarter of this year, while the inflation rate for April rose significantly. On the same day, the European Central Bank decided to keep the three key interest rates for the Eurozone unchanged.
Analysts point out that, under the combined effects of spillovers from global geopolitical conflicts, volatile energy prices, tightening trade conditions, and internal structural contradictions, the Eurozone is trapped in a situation characterized by weak growth, sluggish demand, and heightened uncertainty. The risk of stagflation has increased noticeably, casting doubt on the prospects for economic recovery.
The momentum for recovery continues to weaken. According to the EU statistics office, after seasonal adjustments, the Eurozone's gross domestic product (GDP) grew by 0.1% quarter-on-quarter in the first quarter, down from the 0.2% growth recorded in the fourth quarter of last year. Year-on-year growth was 0.8%, lower than the 1.3% growth seen in the previous quarter. The economic growth rate fell short of market expectations, indicating a clear lack of expansionary momentum.
Data recently released by S&P Global shows that although the Eurozone's composite Purchasing Managers' Index remained above the 50-point threshold in the first quarter, it declined month by month. By March, it was nearing the contraction level, and in April, it fell further to 48.6, suggesting that economic performance may weaken further in the second quarter.
A recent report from the European Commission indicates that, due to a significant drop in consumer confidence and deteriorating sentiment in sectors such as services and retail, the Eurozone's economic sentiment index fell to 93.0 points in April, well below the long-term average.
Peter Vanden Houte, Chief Economist at ING, noted that the first-quarter growth data does not yet reflect the impact of energy and supply shocks triggered by the situation in the Middle East. The Purchasing Managers' Index for April and the European Commission's economic sentiment indicators suggest a weaker start for the Eurozone economy in the second quarter.
Looking at the performance of member states, economic outcomes in the Eurozone were highly divergent in the first quarter, with internal development imbalances worsening further. Germany, the largest economy in the EU, saw its GDP grow by 0.3% quarter-on-quarter, providing crucial support for the regional economy. France experienced zero quarter-on-quarter growth, indicating stagnation, while countries such as Ireland and Lithuania saw their economies contract.
Internal and external pressures are converging. The ongoing geopolitical conflict in the Middle East has led to tight energy supplies and soaring prices, emerging as the most prominent external risk. On April 30, the price for Brent crude oil futures due in June surged by over 6% during trading, reaching $126.1 per barrel, the highest level since June 2022.
European Central Bank President Christine Lagarde stated at a press conference on the 30th that high energy costs will continue to squeeze households' real incomes and make both families and businesses more cautious in their consumption and investment decisions. Although the Eurozone's unemployment rate remained near a historic low of 6.2% in March, labor demand continues to decline, and credit conditions have tightened. If energy supplies remain disrupted, key shipping routes are blocked, or global financial markets turn risk-averse, pressures on Eurozone economic growth could intensify further.
The European Commission pointed out that since the escalation of the Middle East situation, the EU has incurred tens of billions of euros in additional energy import costs due to rising energy prices. Analysts indicate that high energy costs are driving up production expenses in sectors such as transportation and manufacturing, with pressures on capacity contraction gradually spreading.
Additionally, due to slowing global demand, fragmented supply chains, and a stronger euro, the Eurozone's manufacturing exports remain weak. Key industries such as automobiles, machinery, equipment, and chemicals face severe challenges. The latest data from the EU statistics office shows that in February 2026, the Eurozone's goods trade surplus was €11.5 billion, significantly lower than the €23.1 billion surplus recorded in the same period last year.
Internally, structural issues such as low productivity, complex regulatory compliance, rigid labor markets, and slow technological innovation continue to constrain the Eurozone's growth potential.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, predicts that broader supply shortages could further endanger economic growth, with Eurozone GDP potentially contracting by 0.1% quarter-on-quarter in the second quarter.
The risk of stagflation has risen significantly. Faced with slowing economic growth and rebounding inflation, the European Central Bank's monetary policy is caught in a dilemma between stabilizing prices and supporting growth. Meanwhile, member states, constrained by debt, have limited fiscal policy space. Against this backdrop, the risk of stagflation in the Eurozone has increased notably.
Data from the EU statistics office shows that energy prices in the Eurozone rose by 10.9% year-on-year in April, significantly driving up the overall inflation rate. The Eurozone's inflation rate calculated on an annual basis was 3.0% in April, markedly higher than the 2.6% recorded in March.
On April 30, the European Central Bank held a monetary policy meeting and decided to keep the deposit facility rate, the main refinancing rate, and the marginal lending rate unchanged at 2.00%, 2.15%, and 2.40%, respectively. This marks the seventh consecutive time since last July that the ECB has maintained these three key rates.
The European Central Bank stated that both upside risks to inflation and downside risks to economic growth are intensifying. Tensions in the Middle East have led to sharp increases in energy prices, pushing inflation higher and dampening growth prospects. The longer the conflict persists and the longer energy prices remain elevated, the greater the impact on overall inflation and the economy in the Eurozone.
Analysts believe that high energy costs are eroding household purchasing power and corporate investment willingness, leading to a rapid decline in business confidence and manufacturing activity. The European Central Bank faces a policy trade-off between managing inflation expectations and avoiding an excessive economic slowdown. Although some core economies are at risk of recession, the ECB may be prepared to initiate a new cycle of monetary tightening to prevent inflation expectations from becoming unanchored.
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