ECB's Q2 SAFE Survey Indicates Easing Inflation and Wage Growth Expectations

The European Central Bank's (ECB) latest Survey on the Access to Finance of Enterprises (SAFE) reveals that euro area companies experienced a notable rise in borrowing costs during the second quarter of 2026. A net 42% of firms reported increased interest rates on bank loans, a sharp increase from 26% in the previous quarter, affecting both small and medium-sized enterprises (SMEs) and larger companies similarly.

Despite the rise in borrowing costs, overall access to bank credit remained broadly stable. Demand for bank loans saw a modest uptick, while loan availability did not change significantly. However, conditions diverged based on company size; larger firms reported improved access to credit, whereas SMEs experienced a slight decline. Consequently, the ECB's bank loan financing gap increased to 3% from 2%.

Firms cited the general economic outlook as the primary barrier to obtaining external financing, although there was a noted improvement in banks' willingness to lend. Companies expressed a more pessimistic view regarding their business outlook, particularly concerning future sales and profits.

On the inflation front, expectations regarding price and cost growth have eased. Firms now anticipate selling prices to increase by 3.2% over the next year, down from 3.5%. Expected growth in non-labour input costs has also slowed to 5.2% from 5.8%, while wage growth expectations moderated to 2.5% from 2.8%. Inflation expectations remained stable, with median one-year and three-year expectations at 3.0%, while five-year expectations rose slightly to 3.1%. A majority of firms continue to see upside risks to the longer-term inflation outlook.

The survey also addressed the impact of the ongoing conflict in the Middle East on euro area businesses. Many firms reported diversifying suppliers, investing in energy efficiency, and building inventories to enhance supply chain resilience, with few withdrawing from affected export markets. Larger firms tended to adopt mitigation measures more proactively than SMEs.

In terms of investment in artificial intelligence over the next year, companies indicated that funding would primarily come from internal resources (72%), with bank loans, grants, and leasing expected to play a secondary role. Equity financing and debt issuance are anticipated to remain limited.