ECB staff revise down growth, up inflation amid Middle East conflict
The European Central Bank staff's March 2026 macroeconomic projections for the euro area show revised down GDP growth and higher HICP inflation. This outlook reflects renewed uncertainty and energy price volatility stemming from the Middle East conflict.
Growth slowdown, inflation surge
The baseline projections foresee euro area annual real GDP growth at 0.9 percent in 2026, 1.3 percent in 2027, and 1.4 percent in 2028.
These figures represent a downward revision of 0.3 percentage points for 2026 and 0.1 percentage points for 2027 compared to December 2025 projections, primarily due to the escalating Middle East conflict.
HICP inflation is projected to pick up from 2.1 percent in 2025 to 2.6 percent in 2026, then decline to 2.0 percent in 2027, before ticking up to 2.1 percent in 2028.
This includes a sharp increase to 3.1 percent in Q2 2026 driven by energy prices, which are assumed to peak at around USD 90 per barrel and €50 per MWh.
Overall HICP inflation has been revised up by 0.7 percentage points for 2026.
Conflict's shadow, varied futures
The Middle East conflict has introduced renewed uncertainty, driving volatility in global energy markets and pushing up oil and gas prices.
This geopolitical backdrop has led to a downward revision in the short-term growth outlook, as energy price shocks and heightened uncertainty are expected to curb consumption and investment.
The ECB staff complement their baseline with alternative, hypothetical scenarios.
The 'adverse scenario' assumes oil prices peak at USD 119 per barrel and gas at €87 per MWh.
The 'severe scenario' projects an even stronger and more persistent energy price shock, with oil prices peaking at USD 145 per barrel and gas at €106 per MWh, resulting in significantly higher inflation over the projection horizon.
Uncertainty dominates outlook
These projections starkly illustrate the euro area's vulnerability to geopolitical shocks, particularly through energy markets.
The wide divergence across scenarios underscores the profound uncertainty facing policymakers, making any firm forward guidance exceptionally difficult.
While the baseline offers a path to moderating inflation, persistent upside risks from energy prices will remain a central concern for the ECB.