Iran Conflict and the European Economic Outlook

UBS maintains a constructive but selective investment outlook for Europe despite the Iran conflict forcing a downgrade of 2026 growth forecasts to 0.8%.

Key Takeaways

• 1.UBS has lowered its 2026 Eurozone growth forecast to 0.8% and raised inflation expectations due to the ongoing Iran conflict, though a recession remains unlikely.
• 2.Energy security has remained stable so far with adequate storage and alternative routes, but prolonged closure of the Strait of Hormuz poses downside risks.
• 3.Central banks (ECB and BoE) are in a balancing act; a rate hike is expected from the ECB in June/July despite slowing growth momentum.

Table of Contents

• Almost three months in, where does Europe stand in terms of energy vulnerability?
• Will economic growth remain resilient through the rest of 2026?
• Will central banks keep their cool as headline inflation rises?
• What has been the fiscal response in Europe so far?
• What is the outlook for European credit spreads now?
• Where do the opportunities in European equities stand now?

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