The European Union economy is set to slow sharply in 2026 as the Middle East conflict triggers a fresh energy shock, reigniting inflation, weakening consumer confidence and straining public finances, the European Commission's Spring 2026 Economic Forecast showed on Thursday.
"The virtual closure of the Strait of Hormuz has curtailed seaborne flows of oil and LNG by around 15% and 20%, respectively," according to the forecast.
The Commission said the EU economy had been on track for moderate growth and easing inflation before the conflict erupted earlier this year. Since then, surging energy prices have reversed part of the bloc's progress on inflation and dampened economic momentum.
EU gross domestic product growth is now forecast at 1.1% in 2026, down from a previous estimate of 1.4%, after growth of 1.5% in 2025. Growth is expected to recover modestly to 1.4% in 2027. In the euro area, growth is projected at 0.9% in 2026 and 1.2% in 2027.
Inflation across the EU is expected to rise to 3.1% in 2026, one percentage point higher than previously forecast, before easing to 2.4% in 2027. Eurozone inflation is projected at 3% next year and 2.3% in 2027.
The Commission said the EU, as a net energy importer, remained highly vulnerable to external energy shocks despite efforts in recent years to diversify supplies and reduce dependence on fossil fuels after Russia's invasion of Ukraine.
Consumer confidence has fallen to a 40-month low amid fears of higher prices and job losses, while business investment is expected to weaken because of tighter financing conditions, lower profits and uncertainty.
Employment growth is forecast to slow to 0.3% in 2026 from 0.5% in 2025, with the unemployment rate stabilizing around 6% by 2027.
Public finances are also expected to deteriorate, with the EU budget deficit widening to 3.6% of GDP by 2027 and the debt-to-GDP ratio rising to 85.3%.
The Commission warned that prolonged disruption to global energy supplies could further weaken growth and keep inflation elevated beyond 2027.