Olli Rehn, a member of the European Central Bank’s Governing Council and Governor of the Bank of Finland, told Bloomberg on June 30 that the Middle East conflict is producing the economic outcome central bankers dread most: stagflation. Rising energy prices are pushing inflation higher while dragging growth lower.
The euro area’s growth forecast for 2026 now sits at a meager 0.8%, according to Eurosystem projections. Inflation, meanwhile, has spiked to 3%, well above the ECB’s 2% target.
The stagflation signal Rehn has been tracking
This isn’t the first time Rehn has sounded the alarm. Back in May 2026, he pointed to what he called the “first signs” of stagflation, noting that euro-area GDP growth for the first quarter came in only marginally positive while inflation was climbing fast. A month later, his tone has hardened considerably.
The culprit is straightforward: energy. The Iran war has damaged Middle Eastern energy infrastructure, sending oil and gas prices surging across global markets.
