Europe Market Outlook 2026

Macro conditions in Europe heading into 2026 point to modest growth as inflation normalises and structural themes such as technological investment gain traction. According to the September projections by the European Central Bank (ECB), euro-area real GDP is expected to grow by 1.2% in 2025, slowing to 1.0% in 2026 before edging up to 1.3% in 2027. Headline inflation (HICP) is projected to average 2.1% in 2025, fall to 1.7% in 2026, and then rise slightly to 1.9% in 2027. 

Large European asset managers broadly share this picture of subdued but resilient conditions, while emphasising Europe’s persistent structural challenges. In its 2026 outlook, AXA IM notes that “Europe faces trade, geopolitical and competitiveness challenges”, but stresses that these issues are now clearly recognised at the policy level, supported by the Draghi competitiveness agenda. The firm highlights that growth has been “resilient in recent quarters” and expects the ECB to maintain low — or potentially even lower — interest rates, with Germany’s fiscal stance providing an additional cushion for eurozone activity. 

Allianz Global Investors also anticipate moderate growth in 2026. “Rising real incomes and low unemployment should support consumer spending, offsetting industrial weakness linked to global trade tensions,” says Christian Schulz, AllianzGI’s Chief Economist. Schulz also points to several upside scenarios: growth could exceed expectations if households begin to spend rather than save, while a larger-than-expected fiscal boost or productivity gains from the advancing tech wave could further lift Europe’s economic trajectory. 

European Equity Outlook

Sentiment among asset managers suggests optimism for European equities in 2026 — underpinned by improving earnings prospects, supportive policy and relatively attractive valuations. 

J.P. Morgan argues that recent months of market consolidation have laid the groundwork for a renewed equity rally. As their Head of European and International Equity Strategy, Mislav Matejka, notes: “While a range of uncertainties exist at the global level, we believe Eurozone risk-reward is improving. We view the past seven to eight months of market consolidation as constructive, and expect the region to outperform its peers through the end of the year and beyond.”   

Matejka expects a rebound in earnings in 2026 — driven by easier base effects, improved macro conditions, liquidity support, and a better China outlook — which could boost eurozone earnings by “nearly 15%”. 

Pictet Asset Management is similarly optimistic for the asset class. “Adjusting for sector composition differences, Europe continues to trade on a 25% discount to the US compared to the 10% that was typical before the Covid pandemic and the Ukraine conflict. That sets a low bar for positive surprises: even if some of the promised German public spending begins to flow, European stocks could see significant gains,” explains the Pictet Asset Management Strategy Unit their Outlook for Europe 2026. 

At the same time, several asset managers caution that selectivity will remain key. “Diversification remains the most effective defence in a world of concentrated equity markets and high valuations. Investor portfolios must rebalance across styles, sectors, sizes and regions to mitigate risks and capture opportunities, notably in Emerging Markets and European assets,” opines Vincent Mortier, Group CIO of Amundi. 

European Bonds Outlook

After a strong rebound in 2025, European fixed income enters 2026 with a supportive backdrop as easing inflation, ongoing rate cuts and still-elevated yields create a constructive starting point for bond investors. Amundi considers European bonds one of their “key calls” for 2026, favouring euro investment-grade credit, peripheral sovereigns, and UK gilts, and maintaining a positive stance on EU duration as monetary policy continues to normalise. 

Schroders, meanwhile, emphasises that European bond markets will increasingly reward active management. Their 2026 outlook highlights a year of “desynchronised cycles,” with uneven growth and divergent yield curves across regions. They see selective opportunities in areas such as European quasi-sovereigns and covered bonds, but note that capturing them will require agile duration and credit positioning.

Looking at European corporate bonds, RBC Wealth Management expects investment-grade spreads to widen slightly in 2026, with a more noticeable widening in high-yield. Default rates in high-yield have stabilised but are likely to drift higher again due to idiosyncratic pressures, the asset manager opines. “Investors’ ongoing robust demand for yield and fiscal expansion should remain supportive for credit spreads, and we expect the high-yield sector to outperform the investment-grade space,” their outlook states.