EU economy commissioner Valdis Dombrovskis warned that the bloc still faces a
“stagflationary shock” of weak growth and higher inflation despite the US–Iran
two-week ceasefire easing energy tensions, and said the European Commission is
preparing to cut its 2025 growth forecast. Before the conflict, the Commission
projected EU growth of 1.4% this year and 1.5% in 2027, with inflation just
above 2%. Internal scenarios now show growth could slow by up to 0.4 percentage
points if energy prices normalize by end-2026, or by 0.6 points this year and
next if normalization is delayed, while inflation could rise by up to 1.5
percentage points in the more severe case. Dombrovskis said uncertainty remains
high regarding the Iran conflict’s economic impact and warned fiscal responses
must remain temporary and targeted.
