The European Central Bank published its June 2026 Eurosystem staff macroeconomic projections, showing a weaker growth outlook and higher inflation than in March as the war in the Middle East, the closure of the Strait of Hormuz and oil price volatility weigh on demand and raise energy and food costs. In the baseline, which assumes energy prices decline relatively quickly over the next few quarters in line with futures prices, euro area real GDP growth is projected at 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028. Headline Harmonised Index of Consumer Prices inflation is projected at 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. Compared with the March 2026 projections, growth was revised down by 0.1 percentage points for both 2026 and 2027, while inflation was revised up by 0.4 percentage points for 2026 and 0.3 percentage points for 2027. Near-term activity is expected to remain subdued as higher energy prices erode real incomes and confidence, slowing household consumption, while exports stay constrained by competitiveness pressures, the past appreciation of the euro and US tariffs. Over the medium term, domestic demand is expected to be supported by recovering real disposable income, a resilient labour market, and higher infrastructure and defence spending, especially in Germany, alongside AI-related investment. Inflation is projected to peak at 3.4% in the third and fourth quarters of 2026 and remain above 3.0% until early 2027, driven first by energy and then by a gradual pass-through to food and non-energy prices. HICP inflation excluding energy and food is projected to average 2.5% in both 2026 and 2027 before easing to 2.2% in 2028. The projections are accompanied by milder, adverse and severe scenarios for the effects of the Middle East conflict, with no probabilities attached. In the adverse scenario, growth falls to 0.7% in 2026 and 0.9% in 2027 while inflation reaches 3.3% and 3.0%. In the severe scenario, growth slows to 0.5% in 2026 and 0.4% in 2027, with headline inflation rising to 4.0% in 2026 and 5.3% in 2027. In the milder scenario, inflation falls below the 2% target in 2027 and 2028 and growth recovers somewhat earlier than in the baseline.
European Central Bank2026-06-11
European Central Bank lowers 2026-27 euro area growth forecasts and raises inflation outlook as Middle East war lifts energy prices
The European Central Bank's June 2026 staff projections cut euro area GDP growth to 0.8% in 2026 and 1.2% in 2027 and raised HICP inflation to 3.0% and 2.3%, reflecting the energy and uncertainty shock from the Middle East war. Inflation is expected to peak at 3.4% in late 2026. Alternative scenarios range from faster normalization to a severe case with 5.3% inflation and 0.4% growth in 2027.