Nomura expects euro area GDP growth to pick up in 2026–2027, reaching about 1.7–1.8% year-on-year from Q2 to Q4 2027. Estimated potential growth is about 1.1–1.2% year-on-year. In the note, growth above this level is linked to stronger domestic inflation pressure.
Nomura says its forecast is close to the ECB consensus in 2026, but higher in 2027. It puts 2027 GDP growth around 0.3–0.4 percentage points higher per quarter than the consensus or the ECB.
Nomura attributes the stronger growth mainly to Germany and Spain. It also assumes a bigger impact from German fiscal measures than the consensus does. For Spain, Nomura forecasts GDP growth of 2.6% this year and 2.7% next year, versus consensus forecasts of 2.2% and 1.9%.
The note adds that spare industrial capacity in Germany, and underemployment in sectors that may benefit from fiscal measures, could limit inflation pressure. It also says conditions look similar to the period before the financial crisis: tight labour markets, unemployment below equilibrium, and GDP growth above potential (using 1.1% as potential growth).
We expect euro area GDP growth to strengthen through 2026 and 2027, reaching 1.7% to 1.8%. This is well above the estimated potential rate of about 1.1%, and we expect it to push up domestic inflation. Because of this, it makes sense to consider positions that fit a more hawkish European Central Bank, since the ECB may need to raise rates to cool the economy.
Recent data supports this. The January flash inflation estimate rose to 2.5%, which surprised the market. The unemployment rate also fell to a new low of 6.3%. This is lower than the levels seen even before the 2008 financial crisis. That suggests the economy has little slack left to absorb faster growth without creating price pressure.
In rates, this view supports entering interest rate swaps where we pay fixed and receive floating. If the ECB responds to inflation, short-term floating rates like EURIBOR are likely to rise, which would benefit this trade. Selling short-term interest rate futures is another direct way to express the same view.
In FX, higher expected rates should support the euro. Buying EUR/USD call options is one way to position for euro strength while limiting downside risk. The strong growth outlook—especially from Germany and Spain—also supports a bullish view on European equities, which could be expressed through long positions in EURO STOXX 50 futures.
At the same time, spare capacity and underemployment in Germany could absorb some of the growth and reduce inflation pressure. That makes the timing and size of any ECB response less certain, and it could increase market volatility. Buying volatility, such as via options on the VSTOXX index, may help hedge against sharp market moves in the coming weeks.
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