Interest rate hikes slow economic growth

Infographic of October 13, 2026

The infographic of DIW Weekly Report 39-41/2026 compares the effects of interest rate hikes across euro area countries that responded with either restrictive or expansionary fiscal policies. A map of Europe and accompanying bar charts show the average change in real gross domestic product three quarters after an interest rate increase between 1999 and 2025. Countries with restrictive fiscal policies, including Germany, Estonia, Greece, Italy, Malta, Slovenia and Cyprus, experienced an average decline in real GDP of 0.32 percent. Countries with expansionary fiscal policies, including Belgium, Finland, Ireland, Latvia, Slovakia and Spain, recorded a smaller average decline of 0.14 percent. The map highlights the two groups using different colors and indicates that other euro area countries not shown reduced spending while also increasing debt following interest rate hikes. The infographic illustrates that higher interest rates slow economic growth across the euro area, but the negative impact is stronger in countries that subsequently cut public spending than in countries that maintained a more expansionary fiscal stance. The title reads “Interest rate hikes slow economic growth—more so in countries that subsequently cut spending than in those that do not.” The subtitle reads “Change in real gross domestic product after three quarters, 1999–2025.” Sources include Eurostat, the European Central Bank (ECB), and the authors’ own calculations.

Topics: Business cycles , Europe , Financial markets , Monetary policy

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