The eurozone economy expanded by 0.4% in the second quarter of 2026, defying expectations as households and businesses absorbed higher energy prices triggered by the US-Iran war. But beneath the headline figure, economists warned that investment fell sharply — raising questions about the sustainability of Europe's recovery.
Ireland posted the strongest quarterly expansion at about 3.9%, driven by accounting operations by multinationals including major pharmaceutical companies and tech giants that have chosen the country as their European base to benefit from low corporate tax rates. Lithuania grew by 1.7% and Sweden by 1.4%. Portugal recorded 0.8% quarterly growth, Spain 0.7%, Germany 0.2%, France 0.2% and Italy 0.2%, while Belgium and Austria stagnated.
The broader European Union grew by 0.5% in the quarter. Annual growth reached 1.0% in the euro area and 1.2% across the EU. The region was described as resilient despite rising energy prices and geopolitical uncertainty.
Spain Outperforms, Germany Slows
Spain continued to outperform the eurozone's largest economies. Strong household spending, resilient exports, fiscal support and growing renewable energy capacity were cited as helping cushion consumers from rising energy prices. Ankita Amajuri, Europe economist at Pantheon Macroeconomics, said: "The Spanish economy appears to have been unscathed by the energy shock so far." She said Italy was more vulnerable to the recent surge in energy prices than Spain.
Germany's economy slowed to 0.2% in the second quarter after expanding by 0.4% in the first quarter. France returned to growth after contracting in the previous quarter. The contrast underscores the uneven impact of the energy shock across member states — and the gap between countries that invested early in renewables and those that didn't.
Investment Falls Despite Headline Growth
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "The Eurozone economy blew past the consensus in Q2 and was even stronger than our above-consensus forecast, despite the energy price shock triggered by the US-Iran war." He said the data left "a picture of resilience in the first half of the year," and added that "Net exports were the main driver of Q2 GDP growth, while consumption slowed and investment fell." He also said, "the rebound in GDP growth is encouraging, but the details are less so, particularly for investment."
Andrew Kenningham, chief Europe economist for Capital Economics, said: "The continued steady growth of the eurozone economy... shows that households and businesses have not pared back their spending much due to the Iran war." He added: "We think the economy will continue growing steadily in the second half of the year," and said: "All told, the data published today suggest that the economy is weathering the Iran war quite well."
The European Central Bank last month cut its eurozone growth projection for this year to 0.8% from 0.9%.
Why This Matters:
The eurozone's resilience in the face of an energy shock is real — but it's fragile. Investment fell even as GDP grew, which means businesses aren't confident enough to commit capital for the long term. That's a warning sign for Europe's industrial base and its capacity to compete globally. Spain's strong performance shows what's possible when governments invest in renewables and protect household incomes through fiscal support. Germany's slowdown shows what happens when you don't. The uneven impact across member states also highlights the need for coordinated EU-level investment in energy infrastructure and industrial policy — not just national responses. If Europe wants to sustain growth and build resilience against future shocks, it needs a Green Deal backed by serious public investment and a just transition that protects workers and communities. The data suggests Europe can weather external crises — but only if it invests in its own future.