A renewed energy shock linked to the conflict in the Middle East is pushing EU inflation higher, while also weakening consumer and business confidence, the European Commission has said in its Spring 2026 Economic Forecast.
Prior to the outbreak of the conflict in February, the economy of the European Union had been expected to ‘keep expanding at a moderate pace alongside a further decline in inflation‘, however this outlook has been upended by the situation in the Middle East.
The Commission now expects EU GDP growth to slow to 1.1% in 2026, down from 1.5% in 2025 and revised lower from the 1.4% forecast issued last autumn. Growth is projected to recover only modestly to 1.4% in 2027. In the euro area, growth is forecast at just 0.9% in 2026, before edging up to 1.2% in 2027.
‘Volatile environment’
“The conflict in the Middle East has triggered a major energy shock, further testing Europe as it navigates an already volatile geopolitical and trade environment,” commented Valdis Dombrovskis, Commissioner for Economy and Productivity; Implementation and Simplification.
“The EU must learn from past crises by keeping fiscal support temporary and targeted, and further reducing its reliance on imported fossil fuels – a shift that has already strengthened our resilience.”
The Commission also revised its inflation forecasts significantly higher. EU inflation is now expected to average 3.1% in 2026, a full percentage point above previous projections, before easing to 2.4% in 2027. Euro area inflation is forecast at 3.0% in 2026 and 2.3% in 2027, driven primarily by surging energy prices following disruptions in global commodity markets.
Energy exposure
The Commission added that the EU’s status as a major net energy importer has left the bloc exposed to another major external energy shock, less than five years after the last one. Higher energy costs are expected to squeeze households through rising utility bills while increasing operating costs for businesses, weighing on profitability and investment.
Consumer confidence has already fallen to a 40-month low amid fears over inflation and employment, although private consumption is still expected to remain the main contributor to growth. Business investment is forecast to weaken due to tighter financing conditions, reduced profits and elevated uncertainty, while softer global demand is also expected to limit export growth.
The report highlights that previous EU efforts to diversify energy supplies, improve energy efficiency and accelerate decarbonisation have helped cushion the impact of the latest shock. However, inflationary pressure from energy markets is expected to remain elevated throughout 2026, with commodity prices forecast to stay roughly 20% above pre-war levels even after easing.
“Acting with unity and determination, Europe should accelerate reforms, remove barriers to growth, and safeguard sound public finances,” Dombrovskis added. Read more here.
