Germany, France And Italy: 3 Calls For The Eurozone Big 3

Germany, France and Italy face a subdued outlook in 2027, with fiscal policy and politics playing a key role.

Europe’s largest economies face a testing 2027.

How to read our three calls for 2027

Source: ING

Germany: Politics vs economy – round two

2026 was the year of unexpected resilience, despite a continuing struggle to decide and actually implement structural reforms. Still, the economy delivered its strongest growth outcome since 2022, driven chiefly by longer-term fiscal support for defence and infrastructure. Some of the industrial momentum should carry over into 2027, as will fiscal stimulus.

The main question, however, is whether fiscal stimulus will once again be enough to offset the lack of competitiveness-enhancing reforms. Whether the government can implement already announced reforms, enact further-reaching reforms to reduce bureaucracy and taxes and develop a longer-term strategy for affordable energy will determine whether the current rebound could actually turn into a recovery. For now, we expect 2027 growth to come in at around 1%.

France: Weak growth keeps the fiscal problem centre stage

French GDP growth is expected to reach only 0.5% in 2027, after 0.3% in 2026. Weak confidence will limit household spending, while higher financing costs and uncertainty about future taxes and public expenditure will discourage investment. The labour market is likely to soften further, providing little support to domestic demand. This anaemic growth will continue to make the fiscal arithmetic much harder.

Even if a 2027 budget is adopted, weaker tax revenues and rising interest costs are likely to leave the deficit at around 5.5% of GDP, above the government’s 5% target and far too high to stabilise public debt. Political uncertainty will also remain high ahead of the presidential election and possibly beyond as parliamentary elections are likely to follow. Given the high likelihood that no stable majority will emerge, the risk premium on French bonds will likely remain elevated in the first half of 2027.

Italy: Growth set to decelerate, notwithstanding a mildly expansionary budget

Italy’s economy should continue to grow in 2027, but at a slower pace. Domestic demand will remain the key driver, despite higher policy rates, elevated inflation and the recovery plan’s expiry. Unless energy prices turn lower soon, inflation is likely to stay above 5% in the first quarter, squeezing purchasing power. Resilient employment will only partly cushion household disposable income. On the investment front, the recovery plan’s expiry is likely to slow infrastructure investment, but not trigger a collapse. The latest revisions allow some projects to be deferred through dedicated financial vehicles.

With parliamentary elections due in 2027, most likely in late spring or early summer, the government is temporarily shifting fiscal policy to a very mildly expansionary stance. The budget, now before parliament, uses part of the national escape clause’s flexibility for defence and energy, helping to cushion the growth slowdown ahead of the vote.