EU Slashes 2026 Growth Outlook as Middle East Energy Shock Bites

(MENAFN) The European Commission downgraded its economic growth projections for both the EU and the euro area on Thursday, cautioning that an energy crisis ignited by the escalating Middle East conflict is acting as a meaningful drag on output while simultaneously stoking inflationary pressures across the bloc.

Releasing its Spring 2026 Economic Forecast, the Commission trimmed its euro area growth outlook for the current year to 0.9% from a prior estimate of 1.2%, and shaved its 2027 projection to 1.2% from 1.4%. The broader EU economy is now forecast to expand 1.1% in 2026 and 1.4% in 2027 — both figures down from earlier estimates of 1.4% and 1.5%, respectively.

The report painted a picture of an economy absorbing a fresh external jolt. Rising energy costs tied to Middle East developments are squeezing production budgets, lifting consumer prices and eroding both household disposable income and corporate profit margins. Weakening confidence and heightened uncertainty are expected to apply additional downward pressure on demand across the region.

The Commission warned that the energy shock is reverberating beyond Europe's borders, transmitting through globally traded commodities into the broader world economy. Should energy prices track current market expectations — with supply conditions normalizing relatively quickly, albeit only partially — the macroeconomic damage should prove less severe than the energy crisis that rattled the continent in prior years, the report noted.

"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 notably higher. Consumer prices are projected to rise 3.1% across the EU and 3% within the euro area in 2026, before moderating to 2.4% and 2.3%, respectively, the following year.

Among the bloc's heavyweight economies, performance is expected to vary considerably. Germany is forecast to eke out growth of just 0.6% this year, France 0.8% and Italy a marginal 0.5%, while Spain stands apart with a comparatively robust expansion of 2.4%.

The Commission identified the trajectory of the Middle East conflict and its ripple effects on global energy markets as the principal risk factor clouding the forecast, cautioning that a prolonged disruption scenario could simultaneously fuel stronger inflation and suppress growth across the region.

On Türkiye, the Commission projects a deceleration in growth to 3% this year before a rebound to 4% in 2027, identifying elevated oil prices as the primary transmission channel through which the regional conflict is weighing on the Turkish economy.

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