The eurozone economy is expected to slow down in 2026 and inflation to pick up after the war in the Middle East triggered the second energy shock in less than five years, with the severity of the hit determined by how long the conflict drags on, the European Commission said on Thursday.
The surge in oil prices to above $100 a barrel will push up inflation and depress sentiment among firms and households, it added.
"Before the end of February 2026, the EU economy was set to keep expanding at a moderate pace alongside a further decline in inflation, but the outlook has changed substantially since the outbreak of the conflict," the EU executive said in a statement.
The European Commission now forecasts eurozone gross domestic product (GDP) growth will slow to 0.9% in 2026 from 1.3% in 2025, with a rise of 1.2% in 2027. In its last set of forecasts in November, the expectations were respectively 1.2% and 1.4%.
The EU executive also raised its forecasts for inflation to 3.0% in 2026 from a previous 1.9% and to 2.3% in 2027 from 2.0%, reinforcing the case for a rise in European Central Bank (ECB) interest rates.
