Inflation in the eurozone will reach an average of 2.9 percent in 2026 and 2.7 percent in 2027 as a result of the economic consequences of the conflict in the Middle East, according to a study by the consulting company EY (EY). Inflation expectations have been increased compared to the previous forecast, which indicated eurozone inflation of 1.9 percent for both years. In terms of economic growth, the forecast for the eurozone's gross domestic product growth is down to 0.5 percent for the current year, compared to expectations for growth of 1.3 percent before the conflict, BTA reported.
The news of a truce between the United States and Iran has spread around the world, although the situation remains unclear and dynamic, the study states. However, the conflict in the Middle East, which has lasted for several months, is already having its effects - energy prices have risen sharply, with those of oil and natural gas approximately 50 percent above pre-conflict levels. Fertilizer prices have increased by a similar amount, while those of food raw materials are growing more moderately for now and are likely to continue to move upwards. At the same time, disruptions in maritime transport are once again putting pressure on supply chains, making the economic outlook even more unfavourable.
Higher fuel prices have already added over 1 percentage point to euro area inflation, putting pressure on real incomes and consumption. Business and consumer sentiment have deteriorated markedly, indicating early effects on demand through both incomes and expectations and confidence.
According to the study, the main scenario now, especially following the progress in reaching an agreement to permanently open the Omruz Strait, is a gradual de-escalation of the conflict and the resumption of traffic. This would lead to a gradual decline in oil prices by the fourth quarter of 2026 at the earliest. However, prices would remain above pre-conflict levels as production increases would take time to ramp up, stockpiles would boost demand, and geopolitical risk would likely continue to be priced into prices.
The impact of the conflict varies significantly across countries due to differences in government policies, the degree of energy price regulation, the share of energy in consumer baskets, and the structure of their energy mix. The strongest inflationary impact is observed in Bulgaria, Greece, and Croatia, where inflation is expected to be around 2 percent higher this year. According to the study, these three countries are among the most affected economies in the EU, with the highest inflation, due to limited state intervention and a high share of fuels in the consumer basket. In contrast, Switzerland, Denmark and Norway are expected to experience more limited effects - around 0.5-0.6 percent.
This inflationary pressure, together with the uncertain global economic environment and reduced confidence, also determine the GDP response to the conflict. The cumulative effect on GDP growth for the period 2026-2027 is forecast to be strongest in the Czech Republic and Turkey - in the range of 1.3-1.4 percent. In contrast, Norway is likely to remain largely isolated thanks to its role as a major oil and gas producer.
If the conflict flares up again in full force, Yi Wei's study offers three alternative scenarios - from optimistic (a quick and complete resolution) to a severe adverse scenario involving a new escalation and a prolonged closure of the Strait of Hormuz. In the severe scenario, in which oil prices reach $150 by the end of the year and remain high, the euro area would fall into recession, with an overall GDP decline of 3 percent and a peak inflation of 6.5 percent. In contrast, the optimistic scenario assumes a shorter-term impact, with inflation around 2 percent next year and a GDP decline of only 0.3 percent.