Main findings from the ECB’s recent contacts with non‑financial companies

Prepared by Catherine Elding, Friderike Kuik, Aidan Meyler and Richard Morris

This box summarises the main findings from recent contacts between ECB staff and representatives of 67 leading non-financial companies operating in the euro area. The exchanges mainly took place between 23 March and 1 April 2026.^[1]

Contacts reported good business momentum in the first quarter with few signs as yet of demand reacting to the war in the Middle East. While a few contacts noted a slow start to the year, activity was generally said to be good or improving in the first quarter, broadly in line with – or above – prior expectations. Growth was still being driven mainly by services, but orders and production were also steadily picking up in manufacturing and construction. Beyond specific areas of disruption directly linked to developments in the Middle East (i.e. sales in/to and travel to/from/via the region), as of late March incoming orders did not point to a related softening of activity yet.

Chart A

Summary of views on activity, employment, prices and costs

(averages of ECB staff scores)

Growth in consumer spending had maintained a steady pace, but was expected to soften in the coming months. Consumer goods manufacturers and retailers reported moderate growth in an environment of intense competition. Food retailers and suppliers pointed to a continuing shift in demand favouring discounters over full-range supermarkets against the backdrop of still high levels of food prices. Activity in the clothing retail sector reportedly grew at a good pace in the first quarter, but with a slight slowdown after the winter sales period, potentially reflecting renewed consumer caution in light of the situation in the Middle East. The market for domestic appliances and consumer electronics remained challenging owing to modest growth and increasing competition from Chinese manufacturers. Such competition was affecting not only the market for lower-budget appliances, but recently also the premium/luxury segments, which were being increasingly penetrated by innovative, robotic appliances from China. Turning to consumer services, contacts in the telecoms sector pointed to sustained growth in demand for mobile and internet services. Air travel and hotel occupancy had also grown at a good pace in the first months of the year. But there were reports of a downturn in bookings in March, along with concerns about lost inbound tourism from Asia and the Middle East, especially over the summer.

Chart B

Views on developments in and the outlook for activity

(averages of ECB staff scores)

Based on order intake, the outlook for investment continued to improve. Strong growth in demand was seen in the tech industry, induced by AI fuelling demand for related software and cloud services as well as data centre construction. Such construction was still very much in its early stages in Europe, but expected to gain significant traction over the next year or two given mounting concerns about digital sovereignty. Investment in defence equipment was also growing very rapidly with firms active in this sector being very positive about how spending by governments was translating into new orders. The effect of announced increases in infrastructure spending by the German Federal Government was, by contrast, not seen feeding through to construction activity yet. Nonetheless, infrastructure projects (for transport, renewable energy, industrial buildings and hospitals) were supporting growth in construction activity. Moreover, residential investment was said to be slowly recovering in central and northern Europe (albeit not helped by high construction costs) and growing robustly in southern Europe. Demand for machinery and equipment remained weak but was seen as having bottomed out generally.

Employment was rather stable with some signs of improvement compared with recent survey rounds. According to contacts, employment was expanding modestly across most of the services sector while still contracting in much of industry, albeit with signs of a gradual levelling-off. Consistent with this, after several quarters of contraction, recruitment agencies pointed to their activity bottoming out – though at this stage only driven by a mild pick-up in temporary placement activity rather than permanent hiring. Many firms, including the recruitment agencies themselves, continued to report AI-enabled work process optimisation resulting in lower and differentiated staffing needs.

Prior to the outbreak of war in the Middle East, growth in selling prices remained moderate. In the manufacturing and non-food retail sectors, in particular, prices were held in check by still relatively low levels of consumer and industrial demand combined with intense competition, particularly from Chinese imports. Relatively few sectors were seeing significant price increases. Such sectors included tourism, AI-related services, semi-conductors, aerospace and defence (all experiencing strong growth in demand) and steel (owing mainly to the forthcoming introduction of new EU import quotas and tariffs and partly to the Carbon Border Adjustment Mechanism). In the case of food prices, the picture was mixed. Extreme weather was still tending to put upward pressure on fruit and vegetable prices. However, prices for meat, coffee, cocoa and processed food items were seen as plateauing or moderating slightly.

The jump in the price of oil in March was being transmitted rapidly to selling prices for the most oil-dependent goods and services, but the broader pass-through might be more gradual than in the past. Contacts in the air travel, logistics, chemicals, plastics and packaging industries said that selling price increases, often in double digits, had already been implemented in March or announced for the second quarter. In some cases this was facilitated by contract clauses providing for automatic adjustments in response to rising energy prices. Such clauses were more common than when Russia invaded Ukraine as firms had learned from that experience. At the same time, firms – large ones at least – tended to be better hedged against fluctuations in energy prices than they had been in 2022. This hedging should limit the impact somewhat in the short term, as the pass-through of higher energy prices for these firms was less direct, coming mainly or only via smaller, unhedged suppliers seeking higher input prices.

If the war in the Middle East was not concluded soon, however, it was likely to induce supply chain disruption, putting significant further upward pressure on prices and curtailing demand. A conflict lasting months rather than weeks – with the Strait of Hormuz remaining blocked and/or further attacks on oil and gas infrastructure – would result in global shortages not only of fuel but also of many products requiring oil derivatives for their manufacture. Particular concerns surrounded potential shortages of hydrogen, used in the production of fertilisers, and helium, used for wafer cooling in semi-conductor production as well as for welding copper and nickel in many high-tech industries. Supply disruption of this nature could generate inflationary pressure more akin to that witnessed during the COVID-19 pandemic, but there were several mitigating factors. First, unlike during the pandemic, global demand was perceived to be weak, especially in view of subdued domestic demand in China. Second, there would be no abrupt shifts between goods and services consumption. Third, support from fiscal policy was likely to be more limited. Finally, following various shocks in recent years, supply chains had become more resilient and adaptable. For most contacts, the principal concern was the impact that the war would have on consumer confidence and therefore final consumer demand.

Chart C

Views on developments in and the outlook for prices

(averages of ECB staff scores)

Contacts continued to anticipate moderating wage growth. On average, the quantitative indications provided would imply that wage growth is expected to slow, from 3.5% in 2025 to 2.9% in 2026 and 2.8% in 2027. These perceptions and expectations are slightly higher than in the previous survey round, which may in part reflect a different composition of the panel rather than a change in the outlook. However, a few contacts (around 10%) had made small upward revisions to their expectations for 2027 in view of the war in the Middle East, while a larger number (around 30%) saw the latter as an upside risk.

Chart D

Quantitative assessment of wage growth

(percentages)

References

Elding, C., Morris, R. and Slavík, M. (2021), “The ECB’s dialogue with non-financial companies”, Economic Bulletin, Issue 1, ECB.