The European Central Bank says artificial intelligence investment, changing energy consumption and increased government spending have helped the eurozone withstand this year’s energy crisis, although economists warn that several sources of growth may prove temporary.
The eurozone economy has proved more resilient to the energy price shock of 2026 than economists initially expected, supported by increased investment in artificial intelligence, reduced dependence on fossil fuels and higher government expenditure, according to an assessment published by the European Central Bank on Wednesday, 21 October.
ECB economists Óscar Arce, Gerrit Koester and Beatrice Pierluigi found that structural changes in European energy consumption have reduced the economic consequences of rising oil and gas prices. Stronger international demand for technology equipment and additional public spending, particularly in Germany, have also supported growth.
The findings come as the ECB faces renewed inflationary pressure following disruption to global energy markets caused by the conflict involving Iran, raising questions about the outlook for interest rates and economic activity.
Eurozone growth withstands energy shock
In their assessment of the eurozone’s economic resilience, ECB economists reported that economic output continued to expand despite the sharp increase in energy prices earlier this year.
Excluding Ireland, where economic statistics are frequently affected by the activities of multinational companies, real eurozone GDP in the second quarter was 0.6 per cent above its level at the end of 2025.
The ECB also identified quarterly growth of approximately 0.3 per cent over the preceding four quarters, excluding Irish figures.
These results exceeded earlier expectations that the disruption to energy markets would have a greater impact on European manufacturing, consumer spending and business investment.
Nevertheless, the eurozone’s rate of expansion remains modest compared with its longer-term historical performance.
The ECB’s findings suggest that the economy has become better able to absorb international disruptions without experiencing the immediate contractions that might previously have followed comparable energy price increases.
Reduced reliance on imported oil and gas
One of the most significant structural changes concerns energy consumption.
According to the ECB, the eurozone economy is now approximately half as dependent on oil as it was during the early 1990s, measured against economic output.
Greater energy efficiency, the expansion of services and investment in alternative electricity generation have progressively reduced the amount of fossil fuel required to produce economic activity.
The growth of renewable energy has also altered the relationship between natural gas prices and electricity costs.
In Spain, the proportion of hours during which gas-fired power stations determined wholesale electricity prices fell from approximately 80 per cent in 2020 to just over 20 per cent during the first nine months of 2026.
France recorded a similar decline, from approximately 60 per cent to around 20 per cent, supported by its extensive nuclear generating capacity.
Consequently, increases in international gas prices are having a smaller effect on electricity markets in countries with substantial renewable or nuclear generation.
The ECB cautioned, however, that European economies remain exposed to global energy disruptions, particularly through industrial activity and international supply chains.
Artificial intelligence provides unexpected support
The international expansion of artificial intelligence has generated an additional source of demand for European manufacturers and technology companies.
Investment in computing infrastructure, digital services and specialised equipment has increased demand for products supplied by European businesses.
According to the ECB, global trade has performed considerably better than expected at the end of 2025.
The latest projections indicate international trade growth of approximately 4.7 per cent in 2026, compared with the 2 per cent forecast in December.
AI-related investment accounts for part of that improvement.
European manufacturers producing specialised machinery and technology equipment have benefited from increased export orders, while domestic investment in technology has supported economic activity.
However, the ECB found that the effects vary considerably between sectors.
Technology-equipment manufacturers recorded comparatively strong growth in output, employment and new orders.
Software companies performed better in output terms, but the improvement was less evident in employment and new business.
This uneven performance suggests that the economic benefits of the AI investment cycle are concentrated in particular industries.
German spending strengthens European demand
Fiscal policy has provided another source of support.
The ECB estimates that the expansionary fiscal stance in the eurozone has increased to approximately 0.5 percentage points of GDP, twice the level anticipated in December 2025.
Much of the additional stimulus reflects higher German government spending on defence and infrastructure.
Other eurozone governments have introduced measures to limit the effect of energy prices on households and businesses.
Public investment and expenditure have therefore helped compensate for weakness in areas affected by higher import costs and international uncertainty.
Yet the ECB warned that fiscal support cannot necessarily continue at its present level.
Several eurozone governments face borrowing constraints, while additional public spending can place pressure on national budgets.
Interest-rate decisions remain difficult
The ECB’s assessment comes amid expectations of further monetary tightening as policymakers respond to renewed energy-related inflation.
The central bank must consider whether higher energy costs will remain temporary or begin influencing wages, prices and inflation expectations more broadly.
Additional interest-rate increases could reduce inflationary pressures but would also raise borrowing costs for businesses, governments and households.
The economic recovery remains exposed to potential reversals in global demand, international trade and investment in artificial intelligence.
The ECB’s economists also identified geopolitical escalation and further supply-chain disruption as continuing risks.
Their findings indicate that reduced fossil-fuel dependence has made the eurozone less vulnerable to energy shocks, while technology investment and government spending have provided additional support.
Whether that resilience continues into 2027 will depend partly on the durability of international demand and the ability of European governments to maintain investment without increasing inflationary pressure.
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