The European Central Bank released the results of its Survey of Professional Forecasters for the fourth quarter of 2026, revealing upward revisions to inflation and growth expectations. Respondents now project headline inflation, measured by the Harmonised Index of Consumer Prices (HICP), at 3.0% for 2026 and 2.6% for 2027. These figures represent increases of 0.3 percentage points for 2026 and 0.4 percentage points for 2027 compared with the previous survey round. Expectations for 2028 remained unchanged at 2.0%, while longer-term forecasts for 2031 held steady at 2.0% for both headline and core inflation.
Real GDP growth projections were also revised upward. Forecasters expect economic expansion of 1.0% in 2026, an increase of 0.4 percentage points from the prior round, and 1.3% in both 2027 and 2028. The 2027 figure was raised by 0.1 percentage points, while 2028 remained unchanged. Longer-term growth expectations for 2031 were adjusted up by 0.1 percentage points to 1.3%. Despite these positive revisions, the balance of risks for real GDP growth tilted somewhat to the downside across all horizons.
Unemployment rate expectations saw a slight adjustment, rising to 6.4% for 2026 before gradually declining to 6.1% in the longer term. A special question addressed the impact of the war in the Middle East, with respondents indicating that additional effects of the energy price shock are primarily expected in 2027. However, second-round effects on inflation were anticipated to remain limited. Consequently, the risk balance for inflation was tilted to the upside for the 2026-2028 period but became more balanced thereafter.
The simultaneous upward revision of both inflation and growth forecasts suggests that professional forecasters perceive a stronger, albeit hotter, economic environment than previously anticipated. The persistence of headline inflation above the ECB's 2% target through 2027, despite a return to target levels in 2028, indicates that disinflationary pressures may be slower to materialize than earlier models suggested. This divergence between short-term stickiness and long-term anchoring places the ECB in a complex position, where maintaining restrictive monetary policy might be necessary to combat near-term price pressures without stifling the modest growth recovery projected for 2026 and 2027.
Geopolitical factors, specifically the conflict in the Middle East, continue to exert influence on energy markets, with forecasters expecting delayed impacts in 2027 rather than immediate shocks. This timing implies that supply-side disruptions could coincide with the period when inflation is expected to normalize, potentially complicating the path back to the 2% target. The tilt toward upside risks for inflation during the 2026-2028 horizon underscores the fragility of current disinflation trends, suggesting that external shocks remain a primary driver of uncertainty for policymakers and market participants alike.
