The eurozone economic growth keeps disappointing.
According to Eurostat's second estimate published Wednesday, gross domestic product in the euro area expanded by just 0.1% in the first quarter of 2026 compared with the previous quarter, and by only 0.8% year-on-year.
That is a sharp deceleration from 1.3% in the fourth quarter of 2025, and almost a full percentage point behind where the bloc started the year.
The wider European Union fared marginally better at 0.2% quarter-on-quarter and 1.0% annually. Both readings remain well behind the United States, where GDP grew 2.7% year-on-year over the same period.
Beneath the bloc-wide slowdown, however, a small group of economies is pulling sharply away from the average. Three EU members with available first-quarter data stand out as the clear winners: Cyprus, Bulgaria and Spain.
Each is expanding at more than triple the eurozone pace. Each is also navigating a very different set of risks beneath the headline number.
Cyprus tops the table at 3.0%
The island economy expanded by 3.0% year-on-year in the first quarter of 2026, the highest reading among EU members with available first-quarter figures. That puts Cypriot growth at nearly four times the eurozone average.
It is, however, a slowdown from the 4.3% recorded in the fourth quarter of 2025, which had been the fastest annual pace in three years and the second-fastest in the EU at the time. The drivers of the underlying expansion are familiar.
The European Commission's autumn 2025 forecast credits robust private consumption, accelerating investment supported by EU Recovery and Resilience Facility funds, and a record-breaking tourism season.
The Commission projects full-year GDP growth of 2.6% in 2026 and 2.4% in 2027, both well above the eurozone average.
What is changing is the external environment.
Eurobank research economist Michail Vassileiadis wrote in a recent note that Cyprus entered the year from a position of resilience, but renewed external energy pressures linked to the Middle East conflict are now testing inflation, labour-market dynamics and fiscal policy.
The inflation picture has flipped fast.
Headline inflation accelerated from 0.9% year-on-year in February to 1.5% in March and 3.0% in April, with the January to April average at 1.7%. Energy prices alone jumped 8.7% year-on-year in April, reversing the weak or negative energy contribution seen throughout 2025.
Vassileiadis warned that the pass-through to households and firms is likely to become more visible through lower real disposable income and tighter operating margins.
Tourism, which accounts for around 14% of Cypriot GDP, is the most exposed channel.
FocusEconomics reported that tourist arrivals fell 30% in March following Iran's drone attacks on UK air bases on the island, producing the first quarterly contraction in tourism since the pandemic-hit first quarter of 2021.
Vassileiadis noted that the number of unemployed in the accommodation sector rose 2.6% in the first four months of the year compared with the same period of 2025, even as overall unemployment edged up only 0.1%.
The bright spot remains the public finances. The general government recorded a surplus of €573.3 million in the first quarter of 2026, equivalent to 1.5% of GDP, broadly in line with the €600.6 million surplus of the corresponding period of 2025.
That fiscal buffer, Vassileiadis wrote, gives Nicosia room to keep policy supportive without compromising overall sustainability.
Bulgaria economy sees 2.9% growth as it joins the euro
Bulgaria recorded year-on-year growth of 2.9% in the first quarter of 2026, unchanged from the previous quarter and the second-fastest reading in the EU.
The result carries unusual weight because Bulgaria adopted the euro on 1 January 2026, becoming the 21st member of the single currency area.
European Central Bank president Christine Lagarde, in a speech in Sofia ahead of the changeover, framed the move as the natural endpoint of a long convergence process.
She noted that 65% of Bulgarian exports already go to other EU countries and 45% to euro area economies, while the country's automotive industry supplies around 80% of electronic components used in European vehicles. Bulgaria's business cycle, in Lagarde's words, already moves closely in step with the eurozone.
The European Commission's autumn 2025 forecast projects real GDP growth of 2.7% in 2026 and 2.1% in 2027, driven by EU Recovery and Resilience Facility funds, defence investment and resilient private consumption.
But warnings about the underlying mix have been mounting. International Monetary Fund Managing Director Kristalina Georgieva, herself Bulgarian, used a Sofia speech in November to flag what she described as an economy currently operating hot, with wage growth outpacing productivity gains, credit booming and housing prices rising fast.
Euro adoption, in the IMF's view, could lift Bulgaria's per capita income to the EU average within a decade only if paired with fiscal and structural reforms.
That fiscal discipline is now in question.
Eurobank Research observed that the 2025 fiscal deficit widened to 3.5% of GDP, breaching the 3.0% threshold that triggers a European Commission assessment for a potential Excessive Deficit Procedure.
Bulgarian national primary expenditure grew an estimated 13% to 14% year-on-year, well above the 6.2% ceiling set in the Medium-Term Fiscal Plan.
Eurobank warned that a meaningful share of the increase appears structural, particularly in personnel costs, which would materially raise the likelihood of Bulgaria entering an Excessive Deficit Procedure from 2027 onward.
The general government deficit jumped 55.2% year-on-year in the first quarter of 2026 alone, before accounting for any measures related to the war in Iran.
The political backdrop has shifted at the same time. Progressive Bulgaria (PB), the party associated with former president Rumen Radev, secured an outright parliamentary majority for the first time in nearly three decades, winning 131 of 240 seats.
The new government inherits both the fiscal slippage and an inflation problem that is rapidly becoming the worst in the EU: headline inflation accelerated to 6.2% year-on-year in April, from 2.8% in March, with energy prices up 16.1% and services inflation reaching 8.3%.
Spain leads the big economies at 2.7%
Among the four largest eurozone economies, Spain is once again the clear outperformer.
According to the Spanish National Statistics Institute (INE), GDP grew 0.6% quarter-on-quarter and 2.7% year-on-year in the first quarter of 2026, slightly accelerating from 2.6% in the fourth quarter of 2025.
The contrast with the rest of the eurozone heavyweights is striking. Germany expanded just 0.3% year-on-year over the same period, France 1.1%, and Italy 0.7%. Spain alone is matching the United States on the annual measure.
The composition of Spanish growth helps explain the resilience. Domestic demand contributed 3.4 percentage points to annual GDP growth, with household consumption up 3.2% and gross capital formation up 5.8%. External demand subtracted 0.7 points as imports outpaced exports, but the domestic engine more than offset the drag.
External demand subtracted 0.7 points as imports outpaced exports.
BBVA Research, in its March 2026 Spain Economic Outlook, estimated that Spanish GDP grew 2.8% in 2025 and projects 2.4% growth in both 2026 and 2027.
The bank credits the rollout of Next Generation EU funds, sustained immigration expanding the labour supply, and rising defence and infrastructure investment. Spain's unemployment rate has fallen to 10.5%, the lowest since 2008, and services exports continue to grow well above GDP.
BBVA Research also flagged the structural weaknesses.
Productivity per employed person has barely improved since 2019, the housing supply remains insufficient to meet demand, and public debt is approaching 100% of GDP.
The bank estimates that rising geopolitical risks could subtract around 0.2 percentage points from 2026 GDP and add 0.3 points to average inflation, with higher oil and gas prices the main transmission channel.
Other countries to watch
Other European economies recorded strong first-quarter readings even if they did not top the table on the annual measure.
Hungary posted the fastest quarter-on-quarter expansion among the larger economies at 0.8% and a 1.7% annual gain, while Finland surprised to the upside with 0.9% quarter-on-quarter growth and a 1.3% annual reading.
Some Central and Eastern European economies are still pending their first-quarter releases, including Poland and Croatia, both of which posted strong fourth-quarter growth.
ING expects Polish GDP to expand 3.6% to 3.8% year-on-year in the first quarter of 2026, with full-year growth forecast at 3.7%, well above the eurozone trajectory.
For now, the map of European growth in 2026 is being redrawn around the southern and eastern periphery rather than around the bloc's traditional industrial heartland.
