The European Union’s economy commissioner on Tuesday renewed warnings that the bloc faces a potential “stagflationary shock” as a result of the war in Iran.
The conflict could shave 0.2 to 0.6 percentage points from the bloc’s GDP this year, depending on the duration of the conflict and its impact on energy prices, Valdis Dombrovskis said at Semafor World Economy in Washington, DC. He said fallout from conflict could add one percentage point to the inflation rate.
In November, the European Commission forecast EU growth of 1.4% in 2026 and an inflation rate of 2.1%.
Dombrovskis said Brussels is working with the International Energy Agency on coordinating the release of oil reserves to damp the increase in energy prices.
Any broader economic policy response, he said, must be “temporary and targeted” and not raise demand for energy.