BRUSSELS (Realist English). The eurozone economy is clearly showing the effects of the war in Iran and the blockade of the Strait of Hormuz.
Preliminary data from Eurostat, published on 30 April, showed that GDP growth in the first quarter of 2026 was only 0.1% — below the 0.2% expected by analysts and significantly slower than the 0.2% recorded in the fourth quarter of 2025.
Annual inflation in April jumped to 3% (up from 2.6% in March), twice the ECB’s target and the highest level since September 2023. The situation is exacerbated by an unprecedented energy price shock.
GDP: almost zero growth
According to Eurostat data released on 30 April, eurozone GDP grew by only 0.1% in the first quarter compared to the previous quarter, and by 0.9% year-on-year. The main reasons are a decline in consumer activity, a contraction in exports and industrial stagnation against the backdrop of a sharp spike in energy prices caused by the closure of the Strait of Hormuz.
Inflation: above 3% for April
Eurozone inflation accelerated to 3.0% year-on-year in April, up from 2.6% in March, beating market expectations. Energy prices rose by 5.1% compared with deflation of 3.1% in February 2025. Germany saw its CPI rise by 2.9% year-on-year — the highest since January 2024; Spanish annual inflation reached 3.5%, its highest level since June 2024.
Stagflation risks
European Commissioner Valdis Dombrovskis acknowledged that the European Union is facing a “real risk of a stagflationary shock”.
According to the ECB’s pessimistic scenario, the blockade could push GDP growth down to 0.4% in 2026, while inflation could rise above 6%.
ECB: ‘the war in the Middle East has changed everything’
At its meeting on 30 April, the ECB Governing Council left key interest rates unchanged for the fourth time in a row: the deposit rate remained at 2%, the main refinancing rate at 2.15% and the marginal lending rate at 2.4%. The decision was in line with market expectations.
On 14 April, ECB President Christine Lagarde said the eurozone economy was caught between the baseline and adverse scenarios. “There is no easy way back to where we were before this conflict,” she noted. “Households and firms have just gone through a large inflationary shock; muscle memory is still fresh.”
Markets expect rate hikes
Financial markets are pricing in two ECB rate hikes by the end of 2026. MUFG analysts expect a hike to come in June (“a cumulative 50 basis points”), while Rabobank expects rates to remain unchanged until mid‑2026, and 75% of economists expect them to stay unchanged until the end of 2026.
Germany: energy‑intensive industry under pressure
The German economy posted unexpected growth in the first quarter thanks to consumer and government spending, but the industrial sector continues to contract. According to BDI data, industrial production fell by 0.9% in 2025, and the sector could contract for the fifth consecutive year. The reasons cited are rising energy costs, the risk of supply chain disruption and structural weaknesses.
Economy Minister Katerina Reyhe admitted the reality: “The war in Iran has seriously shaken global energy markets, leading to rising prices.” If the conflict drags on, German officials estimate growth could be as low as 0.5%. The IFO business climate index plummeted to its lowest level since May 2020.
European Commission President Ursula von der Leyen said the EU has spent an additional €27 billion (about $31.5 billion) on energy imports since the conflict began.
France and Italy
French GDP growth was zero in the first quarter, due to a fall in private consumption and a contraction in exports; in Italy, growth slowed and the private sector has been contracting for the third consecutive month.
On 20 April, ECB President Lagarde warned that a prolonged blockade of the Strait of Hormuz threatens the EU with rationing of goods and the return of coupon systems, since the strait handles not only 20% of oil and gas, but also 30–45% of global fertiliser supplies.
S&P Global Market Intelligence chief economist Chris Williamson said: “The eurozone PMI points to stagflation. The war in the Middle East is sharply pushing up prices and choking growth.”
Expert opinions and forecasts
| Scenario | 2026 GDP growth (annual) | 2026 inflation (annual) |
| ECB baseline scenario (pre‑war) | 1.2% | 2.1% |
| ECB baseline scenario (April 2026) | 0.9% | 2.6% |
| ECB adverse scenario | 0.4% | 3.5–4.2% |
| ECB severe scenario | 0.4% | >6% |
Carsten Brzeski (ING Research) stressed: “The economy looked as if it was poised for a gradual recovery this year. The war in the Middle East has changed everything. The negative impact on the eurozone will only intensify.” He estimates the eurozone is “now definitely moving towards the adverse scenario”.
Tony Sycamore, analyst at IG Markets, added: “Prospects for any speedy resolution of the Iranian conflict or reopening of the Strait of Hormuz remain negligible.”