Energy shock from Iran war to weigh on Europe’s growth, boost inflation
Summary
The European Union’s executive commission lowered its growth forecast and expects higher inflation due to rising energy prices caused by the war in Iran. Despite these challenges, the EU economy is predicted to avoid a full recession but will face higher costs for households and businesses.Key Facts
- The EU is a net energy importer and is affected by energy price shocks from the Middle East conflict.
- Growth forecast for the 21 countries using the euro was lowered to 0.9% for 2026 and 1.2% for 2027.
- Inflation is now expected to rise to 3.0% in 2026, above the European Central Bank’s 2% goal.
- Rising fuel costs are increasing household bills and business expenses, reducing profits in many industries.
- The European Central Bank may raise interest rates this year to control higher inflation.
- Oil prices increased sharply due to threats to shipping traffic through the Strait of Hormuz, a key route for global oil and gas.
- Consumer confidence in the EU has dropped to a 40-month low because of fears about jobs and inflation.
- The commission warned that prolonged high energy prices could cause slower growth and more inflation.
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