EU cuts 2026 eurozone growth forecast as Middle East energy shock fuels inflation

The European Commission cut its 2026 growth forecasts for the EU and euro area on Thursday, warning that an energy shock triggered by the Middle East conflict is slowing growth and pushing inflation higher.

In its Spring 2026 Economic Forecast, the commission lowered its euro area growth forecast for this year to 0.9% from 1.2%, and its 2027 estimate to 1.2% from 1.4%.

For the EU, growth is now expected at 1.1% in 2026 and 1.4% in 2027, down from previous forecasts of 1.4% and 1.5%, respectively.

The report said the European economy is facing a fresh energy shock caused by developments in the Middle East, raising production costs and consumer prices while eroding household disposable income and corporate profits. The original Turkish draft also states that weaker confidence and heightened uncertainty are expected to weigh on demand.

The Commission said the shock is spreading through globally traded energy commodities and feeding into the world economy. If energy prices move in line with current market expectations, with supply conditions normalizing relatively quickly but only partially, the macroeconomic impact should remain more limited than the previous energy crisis, according to the report.

"Growth is expected to slow but not stop, while inflation is projected to return to a downward path in 2027," the report said, warning that longer-than-expected supply disruptions could make the outlook "much more adverse."

Inflation forecasts were revised upward, with consumer prices expected to rise 3.1% in the EU and 3% in the euro area this year, before easing to 2.4% and 2.3%, respectively, in 2027.

Among major eurozone economies, Germany is forecast to grow 0.6% this year, France 0.8%, Italy 0.5% and Spain 2.4%.

The Commission said risks to the outlook mainly depend on the course of the Middle East conflict and its impact on global energy markets, adding that prolonged disruptions could fuel stronger inflation and weaker growth.

On Türkiye, the Commission expects growth to slow to 3% in 2026 before rising to 4% in 2027, saying higher oil prices are the main channel through which the Middle East conflict is affecting the Turkish economy.