In a new blog post, the European Central Bank assesses why the euro area economy has weathered the 2026 energy price shock better than expected, distinguishing structural reductions in energy dependence from potentially temporary fiscal support and demand linked to artificial intelligence (AI). Excluding Ireland’s volatile data, real gross domestic product in the second quarter was 0.6% above its level in the fourth quarter of 2025. Quarterly growth remained around 0.3% in each of the latest four quarters, despite energy market disruption caused by the Middle East conflict. Improved energy efficiency and a shift toward services have reduced exposure to fossil fuel prices, with the economy now only half as reliant on oil as in the early 1990s. Greater renewable and nuclear generation has also limited the transmission of higher gas prices to electricity prices. Meanwhile, projected fiscal support for 2026 has doubled from 0.25 to 0.5 percentage points, mainly reflecting higher German defense and infrastructure spending. Stronger global trade, supported partly by AI investment, has bolstered demand for euro area capital goods and specialized manufacturing products. Domestic investment linked to AI and continued employment growth have provided additional support to activity and consumption. These buffers face limits. Fiscal space is constrained in several countries, projections indicate less fiscal support in coming years, and a reversal in AI demand would expose parts of the economy. Further geopolitical escalation, energy supply disruption and renewed trade tensions remain downside risks. The analysis identifies reduced dependence on imported fossil fuels, greater electricity market integration and grid investment as ways to limit future exposure. Wider adoption of technological innovation and progress toward a deeper savings and investments union could support productivity and channel savings toward energy and digital investment.
European Central Bank assesses how lower energy dependence, fiscal support and AI demand have cushioned the euro area energy shock
In a new blog post, the European Central Bank examines how reduced fossil fuel dependence, fiscal support and demand linked to artificial intelligence have limited the economic impact of the 2026 energy shock. Excluding Ireland, quarterly growth held at around 0.3% over the latest four quarters, but fiscal constraints and a possible reversal in AI demand could weaken that support. The analysis highlights further energy diversification, electricity market integration and a deeper savings and investments union as ways to strengthen the economy’s capacity to withstand future shocks.