The European Central Bank (ECB) published its Survey of Professional Forecasters for the fourth quarter of 2026, showing higher euro area inflation expectations as the energy shock linked to the Middle East conflict persists. Respondents raised headline inflation forecasts by 0.3 percentage points to 3.0% for 2026 and by 0.4 percentage points to 2.6% for 2027. Expectations remain unchanged at 2.0% for both 2028 and 2031. The revisions primarily reflect higher and more persistent energy prices, rather than stronger transmission of energy costs to other prices. Forecasters expect indirect effects on inflation of around 0.25 percentage points in 2026 and 0.3 percentage points in 2027. Expected second-round effects remain limited, at around 0.1 percentage points for 2027. Inflation excluding energy and food remains forecast at 2.4% for 2026, while expectations were raised to 2.5% for 2027 and 2.2% for 2028. Inflation risks are tilted further to the upside through 2028, principally because energy supply disruptions could last longer or prove more severe than expected. Growth forecasts also increased, mainly because economic data were stronger than anticipated rather than because the expected quarterly growth path improved materially. Real gross domestic product growth is projected at 1.0% for 2026 and 1.3% for 2027, upward revisions of 0.4 and 0.1 percentage points, respectively. The forecast for 2028 remains at 1.3%. Risks to growth remain predominantly on the downside, with prolonged geopolitical tensions and a more persistent energy shock the main concerns.

Original source