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2026-04-09 18:19:47
[EU Warns of Stagflation: War Premium Eroding Growth Baseline] ⑴ EU Economic Commissioner Dombrovskis issued a clear warning to the European Parliament on Wednesday, stating that the EU economy is facing the risk of stagflation, with both rising inflation and economic stagnation, due to the impact of the war with Iran. ⑵ He pointed out that although a ceasefire agreement between the US and Iran was announced this week, the long-term economic outlook remains shrouded in high uncertainty, and the tail risks of geopolitics are far from dissipating. ⑶ According to calculations by internal EU analytical models, under the assumption that supply disruptions are only short-term, economic growth will be revised downward by 0.2 to 0.4 percentage points from last autumn's forecast, while inflation will rise by an additional 1 percentage point. ⑷ Dombrovskis further extrapolated that if supply disruptions intensify and last longer, the economic growth loss in 2026 and 2027 will expand to 0.6 percentage points, and the rise in inflation will also increase accordingly. (5) Analysts believe that the stickiness of energy costs caused by the obstruction of passage through the Strait of Hormuz, coupled with the continued disruption of export expectations caused by Trump's tariff rhetoric, is causing the prospects for the recovery of European manufacturing to face headwinds from both growth and prices. (6) The market will closely watch the European Central Bank's policy choices under the constraints of stagflation. If the economic growth outlook deteriorates further while inflation remains above the target, the room for maneuver in the monetary policy toolbox will become increasingly limited.
