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Energy shock from Iran war to weigh on
Europe's growth, boost inflation
[May 21, 2026]
FRANKFURT, Germany (AP) — The European Union's executive
commission cut its growth outlook and predicted higher inflation due to
sharply higher energy prices from the war in Iran — but said the economy
will avoid an outright recession.
“As a net energy importer, the EU’s economy is highly susceptible to the
energy shock caused by the conflict in the Middle East,” the commission
said in a statement Thursday. The rising cost of fuel "means higher
household bills and surging business costs that reduce profits for many
industries.” |
The Euro currency symbol is seen prior to a press conference after an
ECB's governing council meeting in Frankfurt, Germany, Dec. 18, 2025.
(AP Photo/Michael Probst, File) |
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The
commission’s spring forecast lowered the outlook for growth in
the 21 countries that use the euro to 0.9% for this year, from
1.2% in its autumn forecast, and to 1.2% from 1.4% for 2027.
Inflation is now expected to reach 3.0% for 2026, up from the
earlier forecast of 1.9%.
The new inflation figure exceeds the inflation goal of 2% set by
the European Central Bank, and higher inflation expectations
have led to predictions the ECB will raise its interest rate
benchmarks this year to combat inflation.
Oil prices rose sharply after risk of Iranian drone and
speedboat attacks closed off most ship traffic through the
Strait of Hormuz, the sea passage for about a fifth of the
world's oil and natural gas. On top of that, news of the war has
shaken consumer confidence, which fell to a 40-month low amid
mounting fears of job losses and higher inflation.
Still, the commission said the economy will continue to show
modest growth and avoid an outright recession.
It warned however that a downside scenario of a prolonged period
of higher energy prices would push growth lower and inflation
higher.
The new inflation figure exceeds the inflation goal of 2% set by
the European Central Bank, and higher inflation expectations
have led to predictions the ECB will raise its interest rate
benchmarks this year to combat inflation.
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