European Economy

Latest edition · September 10, 2026

European economy en 1666328

The ECB raised its policy rates by 25 bps in September 2026, lifting the deposit rate to 2.5%, and issued hawkish staff projections showing core inflation remaining above target through 2028. Consequently, UBS expects a final 25 bps hike in December while maintaining a constructive stance on the euro, high-quality European bonds, and European cyclicals.

At its September 2026 meeting, the ECB delivered a widely anticipated 25 bps rate hike, lifting the deposit rate to 2.5%. However, updated Eurosystem staff projections presented a hawkish tilt, revising core inflation forecasts to 2.6% in 2027 and 2.3% in 2028. UBS now expects one further 25 bps hike at the December meeting before the ECB pauses. Despite tighter financial conditions, UBS maintains an overall constructive view on EUR assets: projecting EURUSD at 1.20 in 2027, advocating duration extension in German, Dutch, and Austrian government bonds, preferring high-quality A/BBB corporate credit, and favoring European equities supported by an upgraded 15% earnings growth forecast.

Key takeaways from the latest edition

• 1.The ECB raised all three policy rates by 25 bps to a 2.5% deposit rate, with staff projections projecting core inflation will accelerate to 2.6% in 2027 and stay above target through 2028.
• 2.UBS forecasts one additional 25 bps rate increase from the ECB in December 2026 before pausing, though risks are tilted toward further tightening in 2027 if inflation lingers.
• 3.UBS stays constructive across EUR assets, expecting EURUSD to reach 1.20 in 2027, recommending duration extension in high-quality core European sovereigns, and preferring defensive investment-grade credit.

What this series covers

• ECB review: Further tightening ahead
• European economy
• Hawkish forecasts dominate the meeting
• Why the ECB can still afford to move cautiously
• Our ECB view
• Investment implications
• Foreign exchange
• European fixed income
• Credit
• European equities
• Global asset class preferences definitions
• Risk information
• Generic investment research – Risk information

Edition archive

• European economy en 1666328

  September 10, 2026

• European economy en 1666132

  September 9, 2026

• European economy en 1665920

  September 2, 2026