Finance in brief: Construction pressure, energy savings and Europe’s investment outlook

Europe’s economy is sending mixed signals as construction struggles with high financing costs while renewable energy delivers major savings. Elsewhere, policymakers are examining everything from digital money and artificial intelligence to property investment and bond markets, while Japan and Australia are strengthening their financial ties.

European construction struggles with high financing costs

Europe’s construction sector is expected to remain subdued in 2026, with sharp differences between national markets as high financing costs and weak housing economics restrain activity.

EU construction output is forecast to grow just 0.5 per cent this year. Infrastructure investment, energy projects and Germany’s gradual recovery are providing support, but residential building remains under pressure from borrowing costs, expensive materials and economic uncertainty.

Japan and Australia strengthen financial cooperation

Japan and Australia have agreed to establish annual finance ministerial talks to strengthen cooperation on economic policy and security.

The five-year agreement will cover a broad range of financial issues, reflecting closer economic ties between both countries.

Ministers also aim to promote stable economic growth across the Indo-Pacific and globally.

Cyprus seeks greater flexibility on heating costs

Cyprus is seeking EU permission to cut heating oil duty below 2.1 cents a litre as energy costs squeeze households. Nicosia wants greater fiscal flexibility to fund support measures, joining countries including Spain, Italy and Greece.

EU governments are pressing Brussels for more room to tackle rising energy costs.

Solar power saves Europe €37.4B on imports

Solar power has saved Europe €37.4B in fossil-fuel imports since the Iran war began, according to SolarPower Europe. Rising solar generation has reduced reliance on expensive gas, cushioning households from energy shocks.

Spain has doubled wind and solar capacity since 2019, while renewable investment continues strengthening Europe’s energy security.

Spain inflation reaches 5.0 per cent

Spain’s annual inflation rate is estimated to have reached 5.0 per cent in September, up from 4.6 per cent in August, according to Eurostat’s latest flash estimate.

Online tourist bookings rise 5.3 per cent

EU tourist nights booked through major online platforms rose 5.3 per cent year on year to 258.8M between April and June 2026.

Spain is among the stronger performers. Construction output is forecast to rise 3 per cent in 2026 after recovering from a fall of more than 25 per cent between 2019 and 2022. Housing permits nearly tripled between 2020 and 2024, although momentum is now easing, with permits falling almost 2 per cent in the second quarter. Spain also faces greater exposure to sudden cost increases because public contracts generally lack price-adjustment mechanisms.

Elsewhere, France is expected to contract 2.5 per cent this year, while Germany is forecast to return to growth after five consecutive years of decline. Poland is expected to remain broadly flat before improving in 2027.

The UK is not included in the EU-specific forecasts in the research, so no comparable British construction growth figure is provided.

Across Europe, infrastructure remains the sector’s strongest support.

Energy construction continues to benefit from renewable power and electricity-grid investment, while railway projects include high-speed investment in Spain and Portugal. Housing recovery looks slower, with EU building permits stabilising after rising around 15 per cent between summer 2024 and the end of 2025, across many major urban markets.

EU money rules face fresh scrutiny

EU rules allow banks to pay interest on everyday deposits but ban interest on electronic money, including under MiCA, with the digital euro expected to follow.

Bruegel argues this effectively taxes money holders, particularly lower-income households. Researchers want the ban reconsidered, warning that interest-rate changes could shift funds between financial products and threaten stability.

AI offers opportunity, but regulation raises concerns

Artificial intelligence could boost productivity and prosperity across Europe, but excessive regulation risks holding back its benefits. Critics argue the EU began regulating AI before fully understanding its potential, weakening overall European competitiveness.

Automation is expected to affect routine white-collar jobs most, shifting employment towards services while creating new opportunities for economic growth and innovation.

Property investors turn towards economic stability

European real estate investors are shifting attention from falling interest rates towards economic stability and policy certainty. With borrowing costs expected to remain high, investment decisions will depend on long-term opportunities.

Infrastructure spending on housing, transport, energy and digital networks could help restore confidence and attract capital back into property.

Bond turbulence puts focus on ECB policy

Europe’s recent bond-market turbulence strengthens the case for the European Central Bank to pause quantitative tightening, according to former ECB executive Lorenzo Bini Smaghi.

Continuing to shrink its bond holdings could add pressure to borrowing costs. A temporary halt would allow markets to stabilise before the ECB resumes balance-sheet reductions.

Ukraine could face limits on EU subsidies

Ukraine could face restrictions on EU agricultural subsidies and market access if it joins the bloc. European Commission proposals would limit support for major products including wheat and grain, addressing concerns in countries such as Poland, France and Italy.

Brussels also plans to link membership benefits more closely to reforms.