The eurozone economy expanded by 0.4% in the second quarter of 2026 despite rising energy prices triggered by the US-Iran war, with Ireland, Lithuania and Sweden leading growth while the bloc's largest economies stalled or barely advanced.
Ireland posted the strongest expansion at about 3.9%, though analysts attributed the large quarterly swing to 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%. 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 Big Three Stumble
Germany's economy slowed to 0.2% in the second quarter after expanding by 0.4% in the first quarter. France returned to growth at 0.2% after contracting in the previous quarter. Italy also posted 0.2% growth. Belgium and Austria stagnated. Spain continued to outperform the eurozone's largest economies with 0.7% quarterly growth. Portugal recorded 0.8%.
Spain's 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.
Weathering the Iran War
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."
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."
Investment Concerns Persist
Vistesen 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."
The European Central Bank last month cut its eurozone growth projection for this year to 0.8% from 0.9%. The region was described as resilient despite rising energy prices and geopolitical uncertainty.
Why This Matters:
The eurozone's ability to post 0.4% quarterly growth amid an energy price shock reveals both resilience and underlying fragility. Germany, France and Italy — the bloc's economic engines — barely grew, while Ireland's headline figure reflects multinational tax arbitrage rather than real domestic expansion. The fact that net exports drove growth while investment fell raises questions about the sustainability of this recovery. Europe can't build long-term competitiveness on exports alone if businesses aren't investing in productive capacity. The energy shock from the Iran war has exposed Europe's continued vulnerability to external supply disruptions — a problem that won't be solved by fiscal stimulus or ECB rate cuts. If the bloc's largest economies can't accelerate growth while smaller members rely on accounting tricks or fiscal transfers, the eurozone's structural weaknesses remain unaddressed. The ECB's downward revision to 0.8% annual growth underscores the challenge: Europe is growing, but not fast enough to close the gap with competitors or fund its ambitions.