Inflation and GDP decline: how the conflict over Iran threatens the EU
3 March 22:17
The ongoing war in the Middle East could have significant economic consequences for Europe, particularly in the form of higher inflation and lower real GDP. This is according to Bloomberg , citing estimates by Bloomberg Economics analysts, as reported by "Komersant Ukrainian".
Why Europe is vulnerable
European countries are heavily dependent on oil and gas imports, making them sensitive to supply disruptions and price spikes related to the conflict surrounding Iran.
According to Bloomberg Economics, if the conflict is short-lived and energy prices rise only temporarily, the economic impact will be limited. However, a protracted war could increase inflationary pressures and force governments to increase budget spending to offset the rising cost of living.
Possible impact on GDP and prices
Analysts predict that every $10 increase in oil prices could reduce real GDP by about 0.2% and add about 0.3% to inflation.
If the price of Brent crude rises to $100 per barrel, the EU economy could lose up to 0.6% of real GDP, and inflation could rise by almost 1%.
On March 2, the price of Brent already jumped more than 13% to over $82 per barrel. At the same time, European gas prices rose more than 50% after LNG production in Qatar was halted due to a drone attack.
What this means for monetary policy
Rising inflation could present the European Central Bank with a difficult choice. The benchmark rate is currently 2.15%, and in the event of prolonged inflationary pressure, the regulator could theoretically raise it.
However, the heads of the central banks of Greece and France told Bloomberg that it is too early to talk about such decisions.
