Euro area firms report moderate growth amid Middle East tensions
ECB staff contacts with 76 leading non-financial companies indicate moderate activity growth across the euro area in the second and third quarters of 2026. Businesses report rising energy costs from Middle East conflicts alongside robust demand driven by artificial intelligence.
AI investment offsets manufacturing drag
ECB staff contacts with 76 leading euro area companies between late June and early July 2026 point to moderate activity growth.
While the conflict in the Middle East and subsequent fuel price rises weighed on travel and consumer spending, the overall economic impact remained limited due to resilient global trade and Asian flexibility.
Artificial intelligence emerged as a major growth driver, fueling strong demand for sovereign cloud infrastructure, data centers, and semiconductors.
However, high energy, labor, and regulatory costs continued to weigh on traditional European capital expenditure, prompting some manufacturing firms to shift investments toward Asia or eastern Europe.
Cost pressures mount as wage growth eases
Selling prices increased in the second quarter as approximately 40 percent of contacts raised prices and squeezed margins in response to higher oil costs.
Petrochemical prices climbed 20 to 30 percent, while automatic cost-pass-through clauses accelerated the transmission to upstream goods.
Conversely, wage growth is expected to slow from 3.1 percent in 2025 to 2.5 percent in 2026 and 2.4 percent in 2027, with most companies citing subdued economic conditions and employment outlooks.
Adaptable firms, structural deficits
The ECB survey reveals a corporate sector learning to adapt rapidly to geopolitical shocks through automated cost management.
Yet, the persistent flight of traditional industrial investments out of Europe highlights structural competitiveness deficits.
Without deeper reforms, technological tailwinds cannot compensate for chronic cost burdens.