20th July 2026

European real estate market outlook Q3 2026

European economic outlook

Activity

June’s flash Purchasing Managers’ Index suggests the Eurozone economy was pushed close to stagnation by the energy-cost shock. This weakness should unwind during the second half of 2026, as energy markets normalise. That said, Germany’s fiscal easing is likely to take longer to affect the real economy than first hoped. We expect Eurozone growth of 0.8% in 2026, followed by above-trend growth of 1.8% in 2027 and 1.7% in 2028.

Inflation

The sharp fall in liquid fuel prices during June pulled headline inflation down from 3.2% to 2.8% in June. Fading seasonal distortions and reduced transport-service pressure should also help services inflation moderate. Slower wage growth is expected to support further disinflation, with headline inflation forecast to average 2.5% in 2026, before falling to 1.7% in 2027 and 1.9% in 2028.

Policy

The European Central Bank raised rates to 2.25% in June, but this is expected to mark the end of its response to the energy shock. We expect a pause in July and believe that the data should show limited second-round effects by September. Policy is likely to remain on a protracted hold, although fiscal easing could eventually prompt another hike later in the forecast horizon.

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