"Will Inflation Exceed 3%?" EU Faces 'Stagflation' Fears Amid Middle East Energy Risks

If Oil Holds at $100 and Gas at 75 Euros
Growth Rate in 2026 Expected to Drop by 0.4 Percentage Points

There is an analysis suggesting that if the surge in oil and gas prices caused by the aftermath of the Middle East war continues for an extended period, the European Union (EU) could see inflation surpass 3% this year, with economic growth declining to around 1%.

A Euro sculpture in front of the European Central Bank (ECB) in Frankfurt, Germany. Photo by Yonhap News

According to Bloomberg News on March 12, Valdis Dombrovskis, Executive Vice President for the Economy of the EU, stated, "If Brent crude oil prices remain at $100 per barrel (approximately 148,330 won) and natural gas prices stay high for a prolonged period, the inflation rate could exceed 3% this year." He also said, "This year's economic growth rate could fall to around 1.0%, instead of the previous forecast of 1.4% at the end of last year." Additionally, he analyzed that if European natural gas prices remain at 75 euros per megawatt-hour (approximately 128,352 won) for the rest of this year, inflation could be up to 1 percentage point higher than the previously forecasted 2.1% for this year.

It has been reported that Executive Vice President Dombrovskis presented this outlook at a recent meeting of EU finance ministers.

Bloomberg News reported that if a sharp rise in prices becomes a reality, the European Central Bank (ECB) would have no choice but to consider raising interest rates. The market is currently placing greater weight on the possibility of additional tightening this year.

In a meeting with reporters on March 9, Executive Vice President Dombrovskis warned, "The impact on the European economy will depend on the duration, scope, and intensity of the conflict," and added, "Ongoing attacks on shipping and energy infrastructure pose a risk of exposing the global economy to a prolonged stagflation shock."

Isabel Schnabel, a member of the ECB Executive Board who is known as a leading hawk, said, "In the medium term, inflation is expected to reach the 2% target." However, she added, "This figure is based on the December 2025 forecast, and the new economic outlook to be announced this month will reflect much of the impact of the war."

Executive Board Member Schnabel stated, "The current geopolitical environment is creating upward risks to inflation." She continued, "During the previous inflation phase, the ECB anchored expectations well and fulfilled its role in bringing the inflation rate back to 2%. While we are facing yet another shock, we will handle it well this time as well."

With increased volatility in the commodity markets and worsening economic sentiment, central banks around the world are finding it difficult to assess the impact of the Middle East conflict on the real economy. Bloomberg News reported that the market expects the ECB to keep interest rates unchanged at its meeting on March 19 as it continues to monitor the situation.

This content was produced with the assistance of AI translation services.