The euro area is expected to grow by 0.9% in 2026, 1.3% in 2027 and 1.4% in 2028, according to the European Central Bank (ECB) staff projections published on Thursday. The war in Iran is forecast to weaken household spending in the short term, but it is expected to recover in the medium term. Investment will also be dampened initially, but should outpace GDP growth over the entire projection horizon. Exports should not be strongly affected by the conflict, although they will be subdued and not contribute significantly to economic growth.
Inflation is projected to rise sharply to 3.1% in the second half of this year," reflecting the substantial increases in oil and gas wholesale prices." It is expected to average 2.6% in 2026, 2% in 2027 and 2.1% in 2028. "Nominal wage growth is expected to ease further in 2026 and then move broadly sideways over the remainder of the projection horizon," the ECB staff said.
