EU Downgrades 2026 Growth Forecast Amid New Middle East Energy Shock
The EU has downgraded its 2026 growth forecast due to a new Middle East energy shock, which is reigniting inflation and impacting economic sentiment. GDP growth is now projected at 1.1% for 2026, with inflation expected to reach 3.1%. The EU, as an energy importer, faces higher costs and reduced consumer confidence.
The EU executive has downgraded its growth forecast for 2026, citing a new energy shock from the Middle East conflict that is reigniting inflation and shaking economic sentiment. The eurozone’s purchasing managers index (PMI) fell to a 31-month low of 47.5 in May, down from 48.8 in April, indicating economic contraction.
GDP growth across the EU is now projected to slow to 1.1% in 2026, a 0.3 percentage point downward revision from the autumn 2025 forecast of 1.4%. Growth projections for the euro area are similarly revised down to 0.9% in 2026 and 1.2% in 2027, from 1.2% and 1.4% respectively. Inflation in the EU is expected to reach 3.1% in 2026, a full percentage point higher than previously.
The Commission's pessimistic outlook assumes the EU, as a net energy importer, is highly susceptible to this second energy shock in less than five years. The spike in energy prices leads to higher household bills and surging business costs, redirecting income out of the EU economy. Consumer confidence has plunged to a 40-month low amid fears of inflation and job losses, while business investment is constrained by tighter financing conditions and uncertainty.