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BNP Paribas economists forecast a slowdown in Eurozone GDP growth from 1.5% in 2025 to 1.0% in 2026, accompanied by a rebound in inflation to 3.0% in 2026 and 3.3% in 2027. The projections suggest persistent inflationary pressures despite moderate economic expansion, driven by lingering energy costs and ECB policy adjustments. The European Central Bank (ECB) is expected to maintain a hawkish stance, with potential rate hikes to curb inflation, which could support the Euro against major peers like the USD and EUR/USD pair.
For forex markets, the Euro's strength hinges on the ECB's ability to balance inflation control with economic growth. Higher interest rates typically attract foreign capital, boosting the Euro, but prolonged high rates could dampen Eurozone exports and economic activity. Traders should monitor ECB policy statements and inflation data releases for directional cues.
The outlook highlights risks of a prolonged high-inflation environment, which may delay rate cuts and extend Euro strength. Investors should watch for divergences between the ECB and other central banks, such as the Fed, as these could widen the EUR/USD spread. Energy price volatility and geopolitical tensions in Europe also remain critical variables.
