Thanks to the ongoing conflict in the Middle East, inflation expectations are soaring and growth forecasts are slumping, according to the latest survey of economists from the European Central Bank (ECB).
The central bank’s survey of economic forecasters for the second quarter pointed to an environment marked by slower growth and higher inflation.
“The downward revisions [to growth forecasts] were mainly driven by the expected negative impact of higher energy prices related to the war in the Middle East,” the ECB said.
Indeed, headline inflation expectations have jumped sharply amid soaring energy prices. Inflation is now expected to come in at 2.7% this year, up almost a full point from the previous expectations for 1.8%.
Headline inflation is then seen easing to 2.1% next year, and 2% in 2028.
While higher oil prices are the primary culprit in rising inflation expectations, core inflation forecasts — which exclude the volatile food and energy components — also came in a bit stronger in the latest survey, the ECB said.
Core inflation is now expected at 2.2% for both 2026 and 2027 — up by 0.2 percentage points from the previous survey — and 2.1% for 2028.
Alongside higher inflation, economists are also now seeing weaker growth.
In the latest survey, respondents are calling for real GDP growth of 1% this year, which is down by 0.2 percentage points from the previous report.
The forecast for 2027 is also down by 0.1 points to 1.3%, and unchanged for 2028, also at 1.3%.
Despite the weaker economic outlook, forecasters’ expectations for unemployment were unchanged, the ECB said — with survey respondents expecting the jobless rate to be 6.3% this year, easing to 6.2% in 2027, and 6.1% for 2028.