Cyprus, Bulgaria and Spain Lead Eurozone Growth in First Quarter of 2026

The eurozone expanded 0.8 percent year-on-year in the first quarter of 2026 after growing just 0.1 percent from the previous quarter, according to Eurostat's second estimate published Wednesday. That pace marked a deceleration from 1.3 percent annual growth in the fourth quarter of 2025.

The wider European Union recorded 1.0 percent year-on-year growth and 0.2 percent quarter-on-quarter. Both figures trailed the United States, where GDP grew 2.7 percent year-on-year over the same period. Beneath the eurozone average, Cyprus, Bulgaria and Spain recorded the strongest performances among members with available data.

Each expanded at more than triple the eurozone rate.

The figure slowed from 4.3 percent in the fourth quarter of 2025. Private consumption, investment supported by EU Recovery and Resilience Facility funds, and tourism drove the expansion, according to the European Commission's autumn 2025 forecast. The Commission projects Cyprus will grow 2.6 percent for the full year of 2026 and 2.4 percent in 2027.

External risks have increased. Inflation accelerated from 0.9 percent in February to 3.0 percent in April, with energy prices rising 8.7 percent in April. Tourist arrivals fell 30 percent in March after Iran's drone attacks on UK air bases on the island.

Unemployment in the accommodation sector rose 2.6 percent in the first four months of 2026 compared with the same period in 2025. The general government recorded a surplus of €573.3 million in the first quarter, or 1.5 percent of GDP.

The country adopted the euro on 1 January 2026, becoming the 21st member of the single currency area. European Central Bank President Christine Lagarde stated in a speech in Sofia that 65 percent of Bulgarian exports go to other EU countries and the business cycle already moves closely with the eurozone.

The European Commission forecasts 2.7 percent growth for 2026 and 2.1 percent for 2027. The 2025 fiscal deficit widened to 3.5 percent of GDP, exceeding the 3.0 percent threshold that can trigger an Excessive Deficit Procedure. Headline inflation reached 6.2 percent in April, the highest in the EU.

Progressive Bulgaria secured 131 of 240 parliamentary seats, its first outright majority in nearly three decades.

Spain grew 2.7 percent year-on-year in the first quarter, accelerating slightly from 2.6 percent in the fourth quarter. Among the four largest eurozone economies, Germany expanded 0.3 percent, France 1.1 percent and Italy 0.7 percent. Domestic demand contributed 3.4 percentage points to Spanish growth, with household consumption up 3.2 percent and gross capital formation up 5.8 percent.

External demand subtracted 0.7 percentage points. BBVA Research estimated Spain grew 2.8 percent in 2025 and projects 2.4 percent growth in both 2026 and 2027. The bank cited Next Generation EU funds, immigration expanding the labor supply, and rising defense and infrastructure investment.

Spain's unemployment rate fell to 10.5 percent, the lowest since 2008. Productivity per employed person has barely improved since 2019, public debt is approaching 100 percent of GDP, and the housing supply remains insufficient. BBVA Research estimated that rising geopolitical risks could subtract 0.2 percentage points from 2026 GDP growth.