Tracking the European Economic Implications of the Middle East Conflict

This report assesses the economic fallout of the ongoing conflict in Iran on Europe, highlighting downward revisions to 2026 GDP growth and upward adjustments to inflation forecasts.

Key Takeaways

• 1.The firm has downgraded Euro Area GDP growth for 2026 by approximately 0.8 percentage points.
• 2.Inflation forecasts for the Euro Area and UK have been revised upward by 1.75pp and 1.25pp respectively for end-2026.

Table of Contents

• Exhibit 1: Oil Forwards Slightly Below Our Forecast for Oil
• Exhibit 2: Some Relief but Refined Products and Electricity Prices Remain Elevated
• Exhibit 3: Consumer Confidence Edged up in June
• Exhibit 4: Euro Area GSFCIs Have Eased Close to the Pre-War Levels
• Exhibit 5: Some Relief From the Recent Easing in the GS FCI
• Exhibit 6: We Have Downgraded GDP Growth in 2026 by Around 0.8pp in the Euro Area, With Q1 Irish Distortions Also Weighing on Growth
• Exhibit 7: We Have Raised Our End-2026 Inflation Forecast By Around 1.75pp in the Euro Area and 1.25pp in the UK
• Exhibit 8: Investor and Consumer Sentiment Ticked Up, Price-Related Surveys Remain Elevated
• European Economics Team
• Disclosure Appendix

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