Middle East conflict lifts input costs for 79 percent of firms
Euro area firms face elevated input cost expectations following the Middle East conflict, with small enterprises and trade sectors reporting the highest exposure, according to the ECB SAFE survey for the second quarter of 2026.
SMEs and trade feel the strain
Euro area companies report acute nominal pressures following the outbreak of hostilities on February 28, 2026.
A net 79 percent of surveyed firms expect higher input costs over the next 12 months, while a net 58 percent anticipate raising selling prices and a net 43 percent foresee higher wages.
Profit expectations deteriorated for a net 40 percent of respondents.
Exposure is unevenly distributed across corporate segments: 35 percent of small and medium-sized enterprises reported high exposure scores above seven out of ten, compared with 28 percent of large corporations.
Trade companies and exporters proved most vulnerable due to international supply chain links and energy dependencies.
Hedging through supplier shifts
Geopolitical developments altered operational plans, with two-thirds of firms adopting coping strategies.
Seeking alternative input suppliers led responses at 36 percent, while 31 percent accelerated energy efficiency investments and 29 percent sought alternative fuel sources.
Among highly exposed firms, 12-month employment growth expectations fell from 1.4 percent pre-conflict to 0.5 percent.
The June 14 Memorandum of Understanding between Iran and the United States brought little relief, as survey responses collected afterward showed virtually no change in economic assessments.
Cost shocks with limited exit routes
The survey shows that geopolitical shocks feed directly into price expectations rather than immediate employment cuts.
By passing higher procurement costs to selling prices, firms protect margins at the expense of disinflation.
For monetary policy, this persistent cost pass-through complicates the inflation outlook.
IN: