Development of the Economy and the Industry

According to the European Commission, the EU economy was on the upswing before the outbreak of the Middle East conflict, with inflationary pressures continuing to ease. The conflict has changed this situation fundamentally. The EU economy is facing yet another energy shock, which is set to drive up production costs and consumer prices, among other things, reducing the disposable income available to private households and putting a damper on demand. While growth is expected to slow, it is unlikely to come to a standstill. According to Eurostat, gross domestic product (GDP) in the EU rose by 0.1% in the first quarter of 2026 in a quarter-on-quarter comparison. In its spring forecast, the Commission expects GDP growth of 1.1% in the EU and 0.9% in the eurozone for 2026. The German Federal Statistical Office (Destatis) reports that the German economy grew by 0.3% in the first quarter of 2026. Foreign trade increased considerably and government consumer spending rose significantly, while consumer spending by private households did not increase compared with the previous quarter. Meanwhile, investment in both construction and in equipment is down compared to the previous quarter. According to IfW Kiel, the German economy is currently exposed to conflicting influences: While fiscal policy is delivering a boost, the effects of the Middle East conflict are dampening momentum. According to Statistics Sweden (SCB), GDP in Sweden declined by 0.2% in the first quarter of 2026, compared to the previous quarter. Changes in inventories and private consumer spending had a positive impact, while gross fixed capital formation and government spending slowed growth. According to the Austrian statistical office Statistik Austria, Austrian GDP grew slightly in the first quarter of 2026, by 0.2%, compared to the previous quarter. The increase was driven primarily by the production of goods and public consumption. Meanwhile, the trend in the construction sector remained negative. For 2026, GDP growth of 0.8% is forecast for Germany (IfW Kiel), 2.2% for Sweden (National Institute of Economic Research, NIER) and 0.9% for Austria (WIFO).

In 2026, the labor markets in Germany, Sweden, and Austria have continued to be characterized by subdued economic development. This means that unemployment in all three countries changed only moderately compared with the previous year. Based on the information provided by the German Federal Employment Agency (Bundesagentur für Arbeit), the unemployment rate in Germany based on the total civilian labor force came to 6.2% in June 2026 (not seasonally adjusted), as in the same month of the previous year. According to Statistics Sweden (SCB), the unemployment rate in Sweden fell by 0.3 percentage points year-on-year in May 2026 to 9.4% (not seasonally adjusted). According to national calculations by the Austrian Public Employment Service (AMS), the unemployment rate in Austria in June 2026 was 6.9% and thus 0.1 percentage points higher than in the previous year. For 2026 on average, the unemployment rate based on the respective national definitions is expected to come to 6.3% in Germany (IfW Kiel), 8.6% in Sweden (NIER) and 7.5% in Austria (WIFO).

Measured by the consumer price index (CPI), inflation in Germany is estimated to have come in at 2.3% year-on-year in June 2026, according to Destatis. This means that Germany recorded a slightly higher inflation rate than in the same month of the previous year. The rate of inflation in Sweden is likely to have come in at 0.7% in June 2026. In Austria, inflation amounted to 3.2% (Statistik Austria). In recent months, energy prices – particularly fuel prices, and in Austria also heating oil – have been driving inflation in Germany, Sweden and Austria, though this effect has recently been waning in Germany and Austria. At the same time, services remained the main driver of price increases in Austria. For Sweden, the NIER points out that tax cuts in 2026 will have a significant dampening effect on inflation. Based on the respective national definitions, the average CPI increase in 2026 is expected to come to 2.8% in Germany (IfW Kiel), 0.7% in Sweden (NIER) and 3.2% in Austria (WIFO).

In response to inflationary pressures triggered by the war in the Middle East, the ECB made the decision in June 2026 to raise its key rates by 25 basis points. The interest rate for the deposit facility, which the ECB Governing Council uses to steer the monetary policy course, rose to 2.25% after having sat at 2.00% since June 2025. While mounting pressure on the current low inflation rate is also being felt in Sweden, the Swedish Riksbank left its policy rate unchanged at 1.75% in June 2026, maintaining it at the October 2025 level. Both the ECB and the Swedish Riksbank could raise interest rates as the year progresses. Interest rates on construction and housing loans in Germany, Sweden and Austria were recently slightly higher than they had been back in December 2025. There were signs of a slight slowdown in Germany at the end of June.

The residential real estate markets are showing a mixed picture: while prices for residential property are stabilizing or rising again, the residential investment market in Germany fell short of the previous year’s result, despite the market recovering. In Sweden, the transaction volume increased, while in Austria, it decreased. On the supply side, new construction will not be able to meet housing demand in the short term; as a result, rents are continuing their upward trend. According to VALUE market data, asking rents for existing apartments in Germany were 4.1% higher in the second quarter of 2026 (new construction: 2.5%) than in the same quarter of the previous year. bulwiengesa and BNP Paribas Real Estate expect rents to continue to rise. In Sweden, according to “Hem & Hyra,” the member magazine published by the Swedish tenants’ association (Hyresgästföreningen), rents for 2026 had already been negotiated for more than one million households as of March. The average rent increase until that point was 3.4%. Measured against the index for actual rental payments for primary residences as part of the consumer price index, rents in Austria also rose further from the beginning of the year and were approx. 5.0% higher in May 2026 than in the comparable previous-year month.

Last year, home prices rose again in Germany and Austria, while they stabilized in Sweden. The price increase in Germany continued in the first half of 2026. According to VALUE market data, asking prices for existing apartments in Germany were 2.2% higher in the second quarter of 2026 (new construction: 3.6%) than in the same quarter of the previous year. Experts from bulwiengesa and Fitch Ratings expect prices to continue to rise. In Sweden, purchase prices for tenant-owned apartments (Bostadsrätter) rose as a whole in the first half of 2026. According to figures from Svensk Mäklarstatistik, they were 4.7% higher in June 2026 than in the same month of the previous year. The positive trend in the first half of 2026 was driven by growth in the first few months of the year, while prices generally stagnated in the second quarter. Experts at Swedbank expect residential real estate prices to rise by around 3% in 2026. In Austria, the price increase that began in 2025 continued into the new year. The values of the current residential real estate price index of the Austrian central bank (OeNB) on the basis of new and used condominiums and single-family residences show an increase in the first quarter of 2026 of 2.4% compared with the same quarter of the previous year. According to the RE/MAX forecast released at the start of the year, the purchase prices for condominiums should increase moderately in 2026.

Germany’s population did not change much (-0.1%) in 2025, while populations grew again in Sweden and Austria. According to forecasts, further population growth is expected in Sweden and Austria, while in Germany, at least the number of households is likely to continue to rise. A large number of large cities and metropolitan areas are affected by housing shortages. Meanwhile, construction activity is on the decline. According to the ifo institute, the war in Ukraine has brought the long-standing boom in the European construction sector to a halt. The recovery in the construction sector expected in 2026 is likely to be weaker than previously anticipated, also due to rising energy prices, inflation and interest rates as a result of the Iran crisis. Destatis reports that 206,600 apartments were completed in Germany in 2025, a figure that was down by 18% compared to the previous year. The German Association of German Housing and Real Estate Companies (GdW) expects only 200,000 apartments to be completed in 2026. This will significantly fall short of the approximately 320,000 new apartments needed annually until 2030, according to the BBSR housing demand forecast. Boverket estimates that around 50,600 apartments will have to be built per year in Sweden by 2035. In 2025, 33,400 apartments were completed, one third less than in the previous year. According to Boverket, only around 29,000 apartments are expected to be completed in 2026. This means that the total annual construction need will not be met. In Austria, approximately 38,900 apartments were likely completed in 2025 according to EUROCONSTRUCT, with a decline to 34,500 expected for 2026. At the beginning of the year, EHL pointed to a further increase in the excess demand in Vienna’s rental market: demand remains high and is countered by a supply that is at an all-time low.

CBRE reports that the residential investment market in Germany reflected a selective market environment that was also stabilizing at the same time in the first half of 2026. Despite an increase in the number of transactions, the transaction volume came to € 3.6 billion, around 10% lower than in the same period of the previous year. The volume increased significantly in the second quarter compared with the first quarter. While core investors remained cautious, activity related to core-plus strategies picked up again in the first half of 2026. Value-add investors remained active but adopted a disciplined investment approach. According to CBRE, subsidized and affordable housing is becoming increasingly significant due to the high predictability and stable returns that this sort of housing offers. Prime yields in the top seven cities remained largely stable at 3.4%. For 2026 as a whole, CBRE expects a transaction volume of € 8 to 9 billion. According to Colliers, properties worth € 9.7 billion were traded across all segments on the Swedish transaction market in the first half of 2026, representing a year-on-year increase of approx. 43%. In terms of transaction volume, residential properties were the strongest asset class with a share of 35%. Transactions in the residential segment exceeded the previous year’s figure. According to CBRE, the Austrian real estate investment market saw a transaction volume totaling € 1 billion in the first half of 2026, 31% less than in the same period of the previous year. In terms of transaction volume, residential properties were only the third-strongest asset class with a share of 15%. Transactions in the residential segment were down on the previous year’s figure.

Housing policy and regulatory developments in Germany so far in 2026 have included several measures and proposed laws. In late April 2026, the cabinet passed a bill designed to reform tenancy law. It is still going through the legislative process. Among other things, the plan is to make adjustments to the rent cap so as to limit existing loopholes, as well as to extend both the grace period for payments and the simplified modernization procedure. There are also plans to cap index-linked rents, based on which annual rent increases exceeding the 3% inflation rate would be applied only on a pro rata basis. The 2026 federal budget has allocated € 13 billion to housing construction. Funding is being provided for social and environmentally friendly housing construction, also via the temporary EH55 special subsidy and the Climate-Friendly New Construction (KFN) program, as well as for home ownership. The EU member states had to have implemented the Energy Performance of Buildings Directive (EPBD) into national law by the end of May 2026. In Germany, this is to be achieved primarily through the reform of the Buildings Energy Act (GEG). The corresponding Buildings Modernization Act (GModG) was passed by the Bundestag (lower house of parliament) in July 2026. Among other aspects, it is designed to be more technology-neutral. Under the GEG, the plan was that as of July 1, 2026, new heating systems would have to use at least 65% renewable energy in the big cities. The deadline has been postponed to November 1, 2026, to facilitate the transition to the new heating regulations under the GModG, which no longer include a 65% requirement as a matter of principle. Starting on July 21, 2026, new eligibility requirements will apply to the Federal Funding for Efficient Buildings (BEG) program, e.g., for heating system subsidies and the renovation of residential buildings.  The CO₂ price had already risen from € 55 to between € 55 and € 65 per metric ton at the start of the year.

The coalition committee of the CDU, CSU and SPD has agreed to establish a state-run housing association to promote affordable housing. The aim is to promote social housing and serial construction and to create housing in regions facing a proven housing shortage. At the same time, the coalition plans to enact legislation that would prohibit the socialization (i.e., expropriation into public ownership) of private rental housing portfolios at federal state level.

Since the start of 2026, the rules for annual rent increases that apply to other rental apartments in Sweden also apply to apartments with presumptive rent (“presumtionshyra”, mainly new buildings). Earlier court rulings provided for lower increases. Effective April 1, 2026, the loan-to-value limit for homebuyers in Sweden was also raised from 85% to 90%. Transposition of the EPBD is slightly delayed in Sweden, with major changes to planning and building laws, as well as to energy performance certificates, set to take effect in phases between July and October 2026.

At the start of 2026, the 5th Inflation Reduction Act under Tenancy Law (5th MILG) came into effect in Austria. This raised the minimum fixed term for rental agreements and implemented a rent cap for the unregulated and regulated housing market.