Eurozone: Energy shock reshapes inflation and growth path…

Rabobank’s RaboResearch team assesses how the Middle East conflict and higher Oil and European gas prices will affect the Eurozone economy.

Rabobank’s RaboResearch team assesses how the Middle East conflict and higher Oil and European gas prices will affect the Eurozone economy. Their new baseline sees Eurozone inflation in 2026 about 0.5 percentage points higher and growth 0.1 percentage points lower than pre-conflict projections, with risks skewed to more persistent inflation and weaker activity under severe disruption scenarios. "According to our calculations, Eurozone HICP inflation will rise to an average of 2.4% in 2026, before easing back to 1.9% in 2027 in our new baseline.

This means inflation in 2026 is about 0.5 percentage points higher than in our pre-conflict baseline, illustrating how strongly geopolitical developments can influence domestic price pressures." "In the new baseline scenario, economic growth is 0.1 percentage points lower than in the pre-escalation baseline, and each escalation scenario reduces growth by an additional tenth." "In the most disruptive scenario – where critical energy infrastructure is out of operation for an extended period – we see inflation rise to over 5%, with a peak over 6% late 2026." "Only in Scenario 3 – i.e.

the destruction of critical energy infrastructure – do we see economic growth fall 0.7 percentage points, significantly more than in the other scenarios." "Altogether, this means that among the four largest member states, we project Germany and Italy to be hit somewhat more by the current developments in the Middle East than France and Spain." (This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.) The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts.

The content includes notes by commercial as well as additional insights by internal and external analysts. EUR/USD has reversed part of its earlier pullback and is now edging back towards the key 1.1600 level. The rebound follows a knee-jerk in the US Dollar after the latest NFP report showed the US economy unexpectedly lost 92K jobs in February. Meanwhile, the deteriorating geopolitical backdrop continues to lend support to the Greenback, limiting the pair’s recovery.

GBP/USD is falling back toward 1.3300 in the European session on Friday. A cautious market mood and renewed US Dollar uptick drag the pair lower. The focus now remains on the US NFP data and Middle East headlines for fresh trading incentives.  Gold prices staged a turnaround on Friday, reversing the earlier decline and trading just above the $5,170 mark per troy ounce. The yellow metal continues to draw support from safe haven demand linked to tensions in the Middle East, although gains remain measured as investors weigh the prospect of higher inflation.

After the US and Israel struck Iran, the consensus among most experts was for Bitcoin and the crypto market to see another round of sharp declines. Well, it didn’t happen. And almost one week afterward, crypto appears to be weathering the storm much better than other asset classes considered risky.  February payrolls were much weaker than expected for February. The headline number was -92k, lower than the 55k expected for Feb, and the 130k job increases for January.

The unemployment rate ticked up slightly to 4.4% from 4.3%. After the US and Israel struck Iran, the consensus among most experts was for Bitcoin and the crypto market to see another round of sharp declines. Well, it didn’t happen. And almost one week afterward, crypto appears to be weathering the storm much better than other asset classes considered risky.  Information on these pages contains forward-looking statements that involve risks and uncertainties.

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