The eurozone has remained resilient despite a surge in energy prices linked to the conflict in the Middle East, but the European Central Bank warns that the outlook remains highly uncertain. The ECB is urging governments to reduce dependence on imported fossil fuels, accelerate the adoption of artificial intelligence and deepen capital markets to strengthen the bloc against future geopolitical shocks.
In an analysis by ECB economists Oscar Arce, Gerrit Koester and Beatrice Pierluigi, the central bank examines how changes in the energy mix, government support and stronger global trade linked to AI have helped cushion the European economy.
The report points to a series of shocks in recent years, including supply disruptions after the pandemic, Russia’s war in Ukraine, disruptions in the Red Sea and US tariffs. While these challenges have not triggered an outright contraction in eurozone output, economic growth has remained below its long-term average.
Excluding Ireland’s volatile data, eurozone GDP increased by 0.6% in the second quarter of 2026 compared with the fourth quarter of 2025, while growth over the latest four quarters stood at 0.3%, according to the analysis.
Lower fossil fuel dependence offers protection
The ECB identifies structural changes in the eurozone economy as one reason the latest energy shock has had a limited impact so far. Businesses and households have improved energy efficiency, while the economy has become less exposed to fluctuations in fossil fuel prices.
The eurozone now depends on oil for roughly half as much of its economic activity as it did in the early 1990s, the report says.
The expansion of low-carbon electricity generation has also helped reduce the influence of gas prices on wholesale power markets. In Spain, the share of hours in which gas set electricity prices fell from around 80% in 2020 to just over 20% in the first nine months of 2026. France recorded a similar decline, supported by its nuclear power fleet.
The ECB argues that accelerating the green transition would further reduce the bloc’s exposure to geopolitical disruptions and volatile energy markets. It calls for continued investment in renewable energy and electricity grids capable of delivering low-cost power across Europe.
Government support has limits
Public spending has provided another buffer against the energy shock. The ECB says the public sector has played a greater role in the post-pandemic economy, helping cushion the impact on households and businesses.
Fiscal projections cited in the report point to a rise in the eurozone’s fiscal stimulus for 2026, from 0.25% to 0.5%, reflecting increased defence spending in Germany and measures to contain household energy bills.
However, the central bank cautions that governments may have less room to respond to further shocks because of constraints on public finances. Fiscal support cannot necessarily absorb another energy crisis on the same scale.
The fading risk of immediate supply disruptions also helped restore confidence ahead of the summer, while some businesses brought forward orders to guard against potential shortages.
AI trade supports growth but creates new risks
Stronger-than-expected global trade has provided an additional boost. The report highlights the expansion of trade linked to artificial intelligence, which has supported European exporters and helped offset some of the pressure from higher energy costs.
AI-related demand has also contributed to domestic activity, particularly investment. Companies producing advanced technology equipment and software have performed more strongly than the wider manufacturing sector, according to the analysis.
But the ECB warns that this support could prove vulnerable if demand for AI-related goods and services reverses. Parts of the European economy have become increasingly exposed to the same technology-driven investment cycle, leaving them at risk if the current boom loses momentum.
The labour market has offered some protection. Unlike in previous energy crises, employment has continued to expand since 2022, helping support household incomes and consumption.
ECB calls for deeper capital markets
Despite the economy’s resilience so far, the ECB sees significant downside risks to growth. These include an escalation of military conflicts, further energy supply disruptions, weaker financial market sentiment, renewed trade barriers and climate-related shocks. The risks are interconnected and could materialise rapidly, the report warns.
The central bank outlines three priorities for strengthening Europe’s long-term resilience.
First, it urges governments to accelerate the transition away from imported fossil fuels, reducing the eurozone’s exposure to geopolitical tensions and energy price volatility.
Second, it calls for wider adoption of AI to unlock potential gains in productivity and economic growth, particularly by helping businesses integrate new technologies into their operations.
Third, the ECB argues that Europe must improve the way savings are channelled into productive investment. The energy and digital transitions will require substantial financing, making deeper integration of European capital markets increasingly important.
Faster progress towards a savings and investment union, the report concludes, could support both long-term growth and the eurozone’s ability to withstand future shocks.
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