Quarterly survey reveals anchored inflation expectations and modest growth forecasts for the euro area

In its most recent quarterly assessment, the European Central Bank’s Survey of Professional Forecasters shows long‑term inflation expectations in the euro zone remaining firmly anchored at 2.0 %, signalling that economists believe price pressures are unlikely to run out of control or collapse in the medium term. The survey also sketches a subdued growth outlook, citing real GDP growth of approximately 1.2 % in 2025, 1.1 % in 2026 and 1.4 % in 2027.

Anchoring inflation expectations

When inflation expectations remain stable at the central bank’s target level, the institution is presented with a measure of relief — it indicates that market participants and forecasting professionals believe inflation will neither surge uncontrollably nor fall well below target, thus reducing the risk of a destabilising un‑anchoring of expectations. In this latest round of the survey, forecasts for both headline HICP (Harmonised Index of Consumer Prices) and core inflation (excluding energy & food) held at a midpoint of 2.0 %.

According to the survey, more than half of respondents reported their longer‑term inflation expectation at exactly 2.0 %. Meanwhile, the distribution shows that more than three‑quarters of participants expect inflation in the 1.9 %–2.1 % range, reinforcing the view that the outlook is tightly clustered around the target. That said, the survey notes a modest increase in uncertainty: the aggregate measure of uncertainty rose, reflecting higher disagreement among forecasters and higher individual uncertainty about outcomes ahead.

For policymakers at the ECB, such anchoring is important. Until now, one of the central concerns was that inflation expectations might drift upward (leading to self‑fulfilling price increases) or downward (raising risk of deflation or weak price pressures). A stable 2.0 % expectation suggests the anchoring of inflation expectations remains intact, which in turn gives the ECB more flexibility in its policy calibration.

Growth outlook remains modest

On the growth front, the survey projects that real GDP in the euro area will expand by roughly 1.2 % in 2025, about 1.1 % in 2026, and pick up to around 1.4 % in 2027. This implies a modest recovery path but also signals that the region remains in a low‑growth environment.

Compared with earlier survey rounds, the outlook for 2025 and 2026 was revised slightly downward (by about 0.1 percentage point) while the 2027 figure was nudged up by a similar margin. Such a pace of growth suggests that the euro‑zone economy is not expected to enter a boom phase, nor is it projected to contract significantly — rather, the message is one of slow and steady, but uninspiring, expansion. This dynamic presents a challenge for monetary policy: growth is weak enough to limit inflationary pressures, yet persistent enough that structural factors (labour costs, productivity) remain crucial for the inflation outlook.

Policy implications and risks

With inflation expectations anchored and medium‑term growth modest, the ECB finds itself in a delicate balance. On the one hand, stable inflation expectations near the target provide reassurance that aggressive policy action to fight runaway inflation may not be needed. On the other hand, weak growth and moderate inflation raise the risk of a stagnation‑type scenario or a drift below the 2 % threshold, which the ECB considers symmetric.

One risk factor flagged by the survey is that uncertainty around inflation has edged up. Even if the central expectation remains 2.0 %, higher dispersion among forecasters suggests that tail risks — both to the upside and downside — are non‑trivial. For example, an external shock (to energy prices, supply chains, or geopolitics) could disrupt the neat anchoring of expectations.

Moreover, growth forecasts themselves are weak enough that productivity, wage cost pressures and external demand play outsized roles in shaping the inflation narrative. Should wages or input costs accelerate, inflation might surprise upward; conversely if growth slack remains high, downward pressure on price rises could emerge.

For monetary policymakers, the practical takeaway is to remain vigilant but not overly reactive. With long‑term inflation expectations at target, the primary focus shifts to short‑term data, incoming risks and how expectations evolve. The ECB may adopt a “wait‑and‑see” stance, emphasising flexibility and readiness to respond if the inflation path diverges materially from expectations.

Looking ahead

As the euro‑zone economy progresses through the rest of the year, the survey suggests that price stability is broadly expected to hold. The central 2.0 % inflation expectation offers a stabilising anchor. Yet given the sluggish growth outlook, the margin for error is thin. Should growth falter further or inflation dynamics shift, the ECB will need to signal clearly how it intends to respond.

For markets and businesses, the message is one of continuity: inflation is not expected to re‑accelerate into double‑digit territory, nor is deflation widely expected. That said, the modest growth outlook reminds all stakeholders that the broader economic environment remains muted, and policy headwinds or tail‑risks should not be discounted.

Conclusion
In the latest edition of the ECB’s quarterly Survey of Professional Forecasters, the long‑term inflation outlook in the euro area remains unwaveringly anchored at 2.0 %. This provides a clear signal to policymakers and markets that price expectations are stable. At the same time, modest growth forecasts underscore the fact that the euro‑zone economy is expected to maintain a slow‑moving trajectory, reminding observers that the road ahead is cautious rather than strong. Stability in expectations is good news, but in the current environment it also means vigilance remains warranted.