Just a few months ago, EU’s economy appeared to be heading into another major test. The conflict in the Middle East raised fears of a fresh energy shock, with some warning that the already fragile recovery could lose momentum. New data, however, paints a more optimistic picture.
The European economy picked up speed in the second quarter of 2026, growing at its fastest pace in several quarters. The improvement has not yet translated into the labour market, though. Unemployment remains steady, and millions of Europeans are still without work.
That does not mean the recovery is losing steam. Unemployment figures remain close to historic lows. The labour market also tends to react with a delay. When the economy starts to recover, companies usually move cautiously at first.
GDP growth picks up pace
According to Eurostat’s preliminary estimate, the European Union’s gross domestic product (GDP) grew by 0.5 per cent in the second quarter of 2026 compared with the previous three months. Growth was significantly weaker in the first quarter.
The euro area economy also returned to growth after stagnating at the start of the year, expanding by 0.4 per cent in the second quarter. Compared with a year earlier, the EU economy grew by 1.2 per cent, while the euro area recorded growth of 1 per cent.
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For economists, the figures suggest that the worst-case scenarios linked to energy risks and geopolitical uncertainty have so far failed to materialise.
“Despite all the claims that the world was headed for economic disaster owing to the Middle-East conflict and the accompanying energy shock, the EU economy grew at its most rapid pace in five quarters in April-June,” wrote Dan O’Brien, Chief Economist at the Institute of International and European Affairs, on X. Growth of 0.5 per cent is well above the post-pandemic average, he noted.
Growth driven by a handful of economies
The recovery, however, has not looked the same across Europe. Ireland recorded the strongest growth, with its GDP jumping by 3.9 per cent in the second quarter.
The Irish figures, however, are influenced by so-called “leprechaun economics” — the unusual impact of multinational companies whose activities can significantly distort GDP data. The surge also followed an exceptional contraction in the first quarter, meaning the comparison was made against a much lower base.
Lithuania and Sweden also posted strong results, with their economies expanding by 1.7 per cent and 1.4 per cent, respectively. By contrast, some of the EU’s biggest economies barely moved. Germany, France and Italy all grew by just 0.2 per cent. Austria and Belgium remained flat in the second quarter.
Labour market holds firm, but youth struggle
The stronger economic figures have not yet brought a noticeable fall in unemployment. In June, the EU the rate stood at 6 per cent, unchanged from both the previous month and the same period last year. In the euro area, it reached 6.3 per cent. Eurostat estimates that 13.317 million people across the EU were unemployed. The number edged slightly higher compared with May.
The biggest challenge remains the situation of young people. While overall unemployment in the EU remains low, the rate among people under 25 stood at 15.5% in June. Nearly 3 million young Europeans were out of work.
The latest figures therefore paint a mixed picture of Europe’s economy. The recovery is proving more resilient than many expected, while the labour market remains in historically strong shape. But the benefits of the rebound are not reaching every part of society at the same pace.
“With unemployment across the bloc at a 44-year low, talk of Europe as a museum economy is utter bunkum,” Dan O’Brien commented.
