Bloomberg predicted a slowdown in EU growth due to escalation in the Middle East

According to Brussels estimates, the prolongation of military operations in the Persian Gulf region could reduce the economic output of the European Union (EU) by 0.6 percentage points (pp) in 2026-2027, Bloomberg reported on March 27, citing sources.

According to their data, EU Commissioner for Economy and Productivity Valdis Dombrovskis warned the finance ministers of the bloc's member states that, in addition to slowing economic growth, a protracted conflict would increase inflation by 1.1—1.5 percentage points, that is, to 2.5 percentage points, taking into account the 1 percentage point forecast earlier in November.

According to estimates by the European Commission (EC), even in the event of an early de-escalation, the conflict will lead to a decrease in growth rates by at least 0.4 percentage points (to 1 percentage point compared with the previously forecast 1.4 percentage points) and an increase in inflation by 1 percentage point (to 2 percentage points) in 2026.

"The decline in economic indicators will be a serious challenge for European economies, which are already suffering from a slowdown in growth. This will lead to lower revenues just at the moment when governments will have to cover their energy reserves for next winter. In addition, many European governments are forced to allocate support packages for businesses and households experiencing budget constraints," the article says.

During a press conference on March 27, the European commissioner confirmed the "deep uncertainty" in the European economy and the risks of a stagflationary shock, that is, a slowdown in growth with high inflation. The official also noted that the EU member states' ability to curb rising energy prices is limited due to defense spending.

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Bloomberg reported on March 19 that the cost of liquefied natural gas (LNG) in Europe increased by 35% amid Iran's attack on the facilities of the oil and gas company QatarEnergy in Qatar. According to the agency, the Iranian attacks may also provoke a prolonged shortage of global gas supplies. It clarifies that the market is currently preparing for a "prolonged shutdown" at the critically important LNG center, which provided about a fifth of the world's supply.

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