Europe and the UK for case solvers
The euro area's big four and the UK: slow growth, an energy shock, rising rates, Germany's spending plan, EU rules, and what they mean in a case.
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Key takeaways
- Europe is rich, old and slow-growing. The euro area (the countries that use the euro) produced about USD 18 trillion in 2025 and grew 1.4 percent; the UK about USD 4 trillion.
- Cars and car parts, machinery, chemicals and pharmaceuticals (Germany, France, Italy), luxury goods (France, Italy), tourism (Spain, Italy, France).
- Banking, insurance and asset management, with London as a global financial centre.
- Energy and utilities, defence and infrastructure, where public spending is rising.
Key idea
Europe is rich, old and slow-growing. The euro area (the countries that use the euro) produced about USD 18 trillion in 2025 and grew 1.4 percent; the UK about USD 4 trillion. In 2026 energy prices are the main shock, the European Central Bank is raising rates again, and one set of EU rules covers 27 countries.
Size and growth
| Economy | GDP 2025 (USD billions) | Real growth 2025 (percent) | Real growth 2026, projected (percent) | GDP per person 2025 (USD) | Population 2025 (millions) | Inflation 2025 (percent) |
|---|---|---|---|---|---|---|
| Euro area | 17,998 | 1.4 | 1.1 | 50,260 | 358.1 | 2.1 |
| Germany | 5,048 | 0.2 | 0.8 | 60,440 | 83.5 | 2.3 |
| France | 3,369 | 0.9 | 0.9 | 48,930 | 68.9 | 0.9 |
| Italy | 2,550 | 0.5 | 0.5 | 43,270 | 58.9 | 1.6 |
| Spain | 1,904 | 2.8 | 2.1 | 38,290 | 49.7 | 2.7 |
| United Kingdom | 4,003 | 1.3 | 0.8 | 57,610 | 69.5 | 3.4 |
Source: IMF World Economic Outlook database, April 2026 (2025 values are IMF estimates; 2026 values are projections), checked 2026-10-01. GDP in current US dollars at market exchange rates.
So-what
Growth of 0.2 to 2.8 percent means most European markets grow slowly; winning share or raising prices matters more than market growth.
The IMF's July 2026 update cut euro area growth for 2026 to 0.9 percent, citing higher energy prices and weak consumer confidence; liquefied natural gas prices had risen about 25 percent in Europe since the war started. It projected UK growth of 1.0 percent in 2026, recovering to 1.3 percent in 2027. Germany, which barely grew in 2024 and 2025, beat expectations early in 2026 on exports.
| Economy | Services (percent of GDP) | Manufacturing (percent of GDP) | Urban population (percent) | Aged 65 and over (percent) |
|---|---|---|---|---|
| European Union | 65.9 | 14.3 | 75.2 | 22.4 |
| Germany | 64.5 | 17.6 | 82.1 | 23.7 |
| France | 70.9 | 9.5 | 78.8 | 22.5 |
| Italy | 64.5 | 15 | 69.7 | 25.1 |
| Spain | 68.4 | 10.6 | 80.5 | 21.6 |
| United Kingdom | 73.1 | 7.7 | 83.3 | 19.7 |
Source: World Bank World Development Indicators, 2025 values, checked 2026-10-01.
So-what
Germany and Italy still make things; the UK and France are more services-led. About one person in five or more is 65 or older everywhere.
Sectors that come up
- Cars and car parts, machinery, chemicals and pharmaceuticals (Germany, France, Italy), luxury goods (France, Italy), tourism (Spain, Italy, France).
- Banking, insurance and asset management, with London as a global financial centre.
- Energy and utilities, defence and infrastructure, where public spending is rising.
The state and the regulators
- The European Central Bank sets interest rates for all euro countries. The European Commission runs trade policy and reviews large mergers for the whole EU, and EU law sets common rules for products, data and competition in the single market.
- National governments still set most taxes, labour law and public spending, and national regulators handle many sectors.
- In the UK: the Bank of England (interest rates and bank supervision), the Financial Conduct Authority (financial firms) and the Competition and Markets Authority (mergers and competition).
What changed in 2024 to 2026
- Interest rates turned: the ECB cut its deposit rate to 2.00 percent in June 2025, then raised it to 2.25 percent in June 2026 and 2.50 percent in September 2026 as energy prices pushed inflation up.
- Germany changed its constitution in March 2025 to allow a special fund of up to EUR 500 billion for infrastructure and climate investment, and to exempt defence spending above 1 percent of GDP from its borrowing limit.
- The UK raised employers' National Insurance from 13.8 percent to 15 percent from April 2025, and its trade agreement with India came into force on 15 July 2026.
What this means in a case
- Slow-growing markets: a growth plan needs share gains, price, new segments or acquisitions, because the market itself adds only 1 to 2 percent a year.
- One rulebook, many markets: EU law sets common product rules across the single market, but languages, tax, habits and retail structure still differ, so plan country by country.
- High energy and labour costs push cases toward automation, energy efficiency and moving work; public spending on defence and infrastructure creates new demand for suppliers.
Germany's infrastructure fund can borrow up to EUR 500 billion, planned to run over ten years. If it is spent evenly, how much is that per year, in EUR billions?
The ECB deposit rate went from 2.00 percent to 2.50 percent between June 2025 and September 2026. How many basis points is that rise? (One basis point is one hundredth of a percentage point.)
A client wants to grow 8 percent a year in a European market that grows about 1 percent a year. What must most of its growth come from?
Sources for this lesson (13)
- IMF World Economic Outlook database, April 2026: GDP at current prices, USD billions (IMF DataMapper, indicator NGDPD)
- IMF World Economic Outlook database, April 2026: real GDP growth, annual percent change (IMF DataMapper, indicator NGDP_RPCH)
- IMF, World Economic Outlook Update, July 2026: "Global Economy in Crosscurrents of War and Technology" (Table 1 and text)
- World Bank, World Development Indicators: services, value added, percent of GDP
- World Bank, World Development Indicators: manufacturing, value added, percent of GDP
- World Bank, World Development Indicators: urban population, percent of total (2025 values)
- World Bank, World Development Indicators: population aged 65 and above, percent of total (2025 values)
- European Central Bank: key ECB interest rates
- Deutscher Bundestag, special session of March 2025 on the Basic Law changes (debt brake and EUR 500 billion infrastructure fund)
- Basic Law for the Federal Republic of Germany, Article 143h (special fund of up to EUR 500 billion)
- Basic Law for the Federal Republic of Germany, Article 115 (borrowing limit; defence spending above 1 percent of GDP deducted)
- GOV.UK, Autumn Budget 2024: overview of tax legislation and rates, Annex A (employer National Insurance rate 15 percent for 2025 to 2026)
- GOV.UK, "Historic UK-India free trade agreement is now in effect", July 2026
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