ECB study says uncertainty subtracted 0.4 points from euro area growth
An article in the European Central Bank’s Economic Bulletin puts a number on something usually described only in adjectives. Uncertainty shocks, the authors find, subtracted around 0.4 percentage points from real GDP growth in the period from the first quarter of 2025 to the first quarter of 2026.
The article, “The cost of not knowing: how uncertainty weighs on the euro area economy”, is written by Malin Andersson, Alina Bobasu, Lorena Saiz and Stefania Scrofani. It was pre-released on 5 August 2026 at 14:00 Central European Time, ahead of the publication of Economic Bulletin Issue 5, 2026 on 6 August at 10:00.
The authors do not rely on a single gauge. They assemble the Economic Policy Uncertainty index, a Trade Policy Uncertainty measure following Caldara and others (2020), a geopolitical risk index following Caldara and Iacoviello (2022), the European Commission’s survey-based uncertainty indicator, the VSTOXX, the Composite Indicator of Systemic Stress, a macroeconomic uncertainty measure following Jurado and others (2015), and forecaster disagreement. The two models are estimated over different samples. The narrative structural vector autoregression runs over the period from the first quarter of 2001 to the first quarter of 2026; the proxy variant is estimated for the period covering the first quarter of 1999 to the first quarter of 2026, using four lags. One caveat travels with both: the empirical analysis focuses mainly on the Economic Policy Uncertainty index, so the wider set of gauges frames the discussion rather than driving the estimates.
Two identification approaches produce the estimated troughs below.
| Variable | Narrative SVAR, trough | Proxy SVAR, trough |
|---|---|---|
| Real GDP | not separately quantified in the text | around minus 1 percent |
| Private consumption | minus 0.4 percent | around minus 0.7 percent |
| Business investment | minus 1.2 percent | around minus 2 percent |
The article places the strongest effects at around three quarters after the shock, for the two domestic demand components under the narrative identification. Under the proxy identification business investment rebounds after roughly six quarters, but the article notes that the rebound is not statistically significant. On our calculation the investment response is about three times the consumption response under the narrative model and about 2.9 times under the proxy model – the same ordering under two different identifications. The pattern within the aggregates is as informative as the totals: tangible investment is more sensitive than intangible investment, and durable goods consumption falls most sharply but recovers swiftly, while services consumption stays subdued for longer. Our reading is that this is why a period of elevated uncertainty can leave activity weak even after the headline indices have normalised.
The article sets out four channels. The first is the “real options” channel, in which firms facing irreversible investment decisions find waiting valuable. The second is precautionary saving by households. The third is financial frictions, as risk premia widen and credit conditions tighten. The fourth is behavioural adaptation, in which agents adjust once uncertainty becomes a “new normal”, which dampens the measured response over time.
The authors close with a judgement rather than a recommendation: given the persistent effects of uncertainty shocks and the currently elevated levels of economic policy uncertainty as a result of the war in the Middle East, uncertainty is likely to continue exerting a drag on real economic activity throughout 2026. The article contains no policy prescription, and no per-country or per-quarter breakdown.
It is one of several pre-released pieces in the same issue. The others are “Tracing the ripple effects of the Middle East war on euro area consumption”, released 3 August, “Feeling the heat unevenly: energy prices and household consumption”, released the same day, and “Europe’s venture capital gap and the financing of high-growth firms”, released 4 August.
Why it matters: the Governing Council has been describing its stance as data-dependent and meeting-by-meeting, and this article supplies a quantified reason why incoming data may understate the drag. The narrative framework attributes around 0.4 percentage points of lost real GDP growth over five quarters to uncertainty shocks, and puts the business investment trough between 1.2 and 2 percent below baseline across the two identifications. Our reading is that on those estimates the weakness in euro area capital formation is not solely a function of the level of interest rates.
Looking ahead: the full Economic Bulletin Issue 5 publishes on 6 August. ECB policy rates have stood at 2.25 percent on the deposit facility, 2.40 percent on the main refinancing operations and 2.65 percent on the marginal lending facility since 17 June 2026, and were left unchanged at the 23 July meeting, where the Council repeated that inflation stabilises at its 2 percent target in the medium term. The Governing Council next meets on 9 and 10 September, hosted by the Deutsche Bundesbank in Berlin, with the decision announced on 10 September, followed by 28 and 29 October and 16 and 17 December.
Sources: European Central Bank, Economic Bulletin Issue 5, 2026, article “The cost of not knowing: how uncertainty weighs on the euro area economy”, pre-released 5 August 2026; ECB monetary policy decisions, 23 July 2026 and 17 June 2026.
