Economic growth across the eurozone slowed sharply in the opening months of 2026, but a handful of countries on Europe’s southern and eastern edges continued to expand far faster than the bloc’s traditional economic powers.

New figures released by Eurostat showed the eurozone economy grew just 0.1 percent in the first quarter compared with the previous three months and 0.8 percent year-on-year. That marked a clear slowdown from the 1.3 percent annual growth recorded in the final quarter of 2025.

The broader European Union performed slightly better with annual growth of 1 percent, though both figures remained well behind the United States, where the economy expanded 2.7 percent over the same period.

Despite the wider slowdown, Cyprus, Bulgaria and Spain emerged as the bloc’s fastest-growing economies, each recording annual growth rates above 2.5 percent.

Cyprus led the rankings with annual growth of 3 percent during the first quarter, nearly four times the eurozone average. The island nation continued to benefit from strong private consumption, tourism and investment supported by European Union recovery funds.

However, rising energy costs linked to tensions in the Middle East have begun to weigh on the economy. Inflation accelerated sharply in recent months, while tourism arrivals reportedly dropped after regional security concerns affected travel demand.

Economists said Cyprus still entered the year from a relatively strong fiscal position. Government accounts posted a surplus equal to 1.5 percent of gross domestic product in the first quarter, giving authorities room to respond to economic pressures.

Bulgaria followed closely with annual growth of 2.9 percent, supported by consumer spending, European Union investment funding and defence-related expenditure. The country formally adopted the euro at the start of 2026, becoming the newest member of the single currency bloc.

European Central Bank President Christine Lagarde previously described Bulgaria’s entry into the eurozone as the culmination of a long economic integration process.

Yet analysts warned that inflation and government spending are becoming growing concerns. Consumer prices surged to 6.2 percent in April, while the fiscal deficit widened beyond European Union limits.

Spain remained the strongest performer among the eurozone’s major economies, recording annual growth of 2.7 percent. Household spending, investment and infrastructure projects funded through European recovery programmes continued to support the economy.

The contrast with Europe’s largest industrial economies was striking. Germany recorded annual growth of just 0.3 percent, while France expanded 1.1 percent and Italy grew 0.7 percent.

Analysts said the figures reflected a broader shift in Europe’s economic momentum away from its traditional industrial core toward southern and eastern member states, where investment flows, tourism and labour market growth are providing stronger support despite mounting geopolitical and inflationary pressures.

Lufthansa announced Tuesday that it plans to increase its stake in ITA Airways to 90 percent, marking a major step in the consolidation of Europe’s airline industry and strengthening the German carrier’s position in the Italian market.

Europe’s largest airline group said it would exercise its option to acquire a majority stake in the Italian airline in June at a previously agreed price of €325 million. The move follows Lufthansa’s purchase of a 41 percent stake in ITA Airways in January 2025.

The remaining shares are currently owned by the Italian government, which previously held 59 percent of the airline. Under the new arrangement, Italy is expected to retain a 10 percent holding once the transaction is completed.

Lufthansa said the deal had already received approval from its board of directors, though it still requires clearance from regulators in both the European Union and the United States.

Industry analysts said the acquisition would accelerate efforts to reshape Europe’s highly competitive aviation market while giving Lufthansa stronger access to Italy, one of the continent’s busiest travel hubs.

The company stated that once the process is finalized, ITA Airways would be “fully integrated” into the Lufthansa Group both financially and operationally.

Lufthansa chief executive Carsten Spohr said many parts of the integration were already underway.

“All customer-facing interfaces are already integrated,” Spohr said, adding that the only major area still awaiting approval involves North Atlantic flight operations, where regulatory clearance for the merger remains pending.

If regulators approve the transaction, Lufthansa expects the takeover process to be completed during the first quarter of 2027.

ITA Airways chief executive Joerg Eberhart welcomed the agreement, describing it as an important industrial and strategic development for the airline.

He said closer integration with Lufthansa would allow ITA Airways to compete more effectively on international routes and expand its long-haul operations through Rome’s main airports.

The deal represents another significant shift for Italy’s aviation sector following years of instability linked to the collapse of former national carrier Alitalia. ITA Airways was launched in 2021 as Alitalia’s successor after the Italian government moved to restructure the struggling airline industry.

For Lufthansa, the acquisition strengthens its network in southern Europe and increases access to transatlantic and intercontinental traffic. Rome is viewed as a potentially important hub for long-haul services connecting Europe with North America, Latin America and parts of Africa.

Investors reacted positively to the announcement. Lufthansa shares rose around 2 percent in afternoon trading across European markets as traders welcomed the company’s expansion strategy despite continued challenges facing the global aviation sector, including rising fuel costs and geopolitical tensions affecting international travel routes.

Global oil prices climbed sharply on Monday while European stock markets slipped and Asian shares pushed to fresh highs after US President Donald Trump rejected Tehran’s latest response to a proposal aimed at ending the war in Iran.

Energy markets reacted quickly to growing uncertainty surrounding the conflict and the continued disruption in the Strait of Hormuz, a vital shipping route for global oil supplies. Investors fear prolonged instability in the region could tighten energy markets further and place additional pressure on the global economy.

Brent crude futures rose more than 4% in early trading, reaching around $104.75 per barrel, while US West Texas Intermediate crude climbed to nearly $98.90 a barrel. The gains followed Friday’s close, when Brent traded near $100 and WTI hovered around $95.

The jump came after Trump described Iran’s response to the latest US proposal as “totally unacceptable,” signaling that negotiations to end the conflict remain far from resolved. Details of the proposal have not been publicly disclosed, but the rejection added to concerns that the blockade of the Strait of Hormuz could continue.

The ongoing disruption in the waterway has already rattled oil markets over recent weeks. The narrow strait handles a major share of the world’s crude exports, and fears over supply interruptions have triggered sharp swings in prices since fighting escalated.

European stock markets opened cautiously as investors weighed the potential economic impact of higher energy costs. The broader Stoxx 600 index traded flat, while the Euro Stoxx 50 slipped more than 0.5%.

National indexes across the region showed mixed performances. Britain’s FTSE 100, Germany’s DAX and Italy’s FTSE MIB moved within a narrow range, while France’s CAC 40 fell more than 1%, reflecting increased investor caution.

In Asia, however, markets largely brushed aside concerns from the Middle East. Japan’s Nikkei 225 briefly touched another record intraday high before ending lower by around 2%. South Korea’s Kospi surged 4.1% to a fresh all-time intraday high, driven by gains in major technology companies including Samsung Electronics and chipmaker SK Hynix.

Technology stocks and investor enthusiasm surrounding artificial intelligence have continued to support Asian markets despite geopolitical tensions. Over the past month, the Nikkei has gained more than 10%, while the Kospi has risen more than 30%.

US futures were slightly lower ahead of Wall Street’s opening bell, with major indexes trading modestly in the red.

Attention is also turning to Trump’s expected visit to China later this week for talks with Chinese President Xi Jinping. The meeting is expected to cover trade issues alongside discussions on the conflict in Iran and broader global economic concerns.