Spring 2026 Economic Forecast: Brussels cuts EU growth to 1.1% as Middle East energy shock reignites inflation

The European Commission’s Spring 2026 Economic Forecast, published on 21 May, paints a markedly gloomier picture than just six months ago. EU GDP growth is now projected to slow to 1.1% in 2026, down from 1.5% in 2025 and a downward revision of 0.3 percentage points from the Autumn 2025 forecast. The euro area fares slightly worse, with growth revised down to 0.9% this year.

The culprit is unambiguous: the outbreak of conflict in the Middle East has triggered a major energy shock — the second of its kind to hit the bloc in less than five years. Before the end of February 2026, the EU economy was on track to keep expanding at a moderate pace alongside declining inflation. The outlook has since changed substantially.

Inflation revised up a full percentage point

Inflation in the EU is now expected to reach 3.1% in 2026 — a full percentage point higher than previously forecast — before easing to 2.4% in 2027. In the euro area, inflation is revised up to 3.0% in 2026 and 2.3% in 2027, against autumn projections of 1.9% and 2.0% respectively. March and April data already showed a sharp acceleration driven by energy prices, with consumer confidence falling to a 40-month low.

Headline inflation is now set to peak in 2026 before easing in 2027, as energy commodity prices are expected to decline gradually — though remaining around 20% above pre-war levels. As a net energy importer, the EU economy is highly susceptible to such shocks, with surging input costs squeezing business margins and redirecting income towards energy-exporting countries.

A call for fiscal discipline

Commission officials have stressed that the EU must learn from past crises by keeping fiscal support temporary and targeted, safeguarding public finances, and further reducing reliance on imported fossil fuels. The investment in energy resilience since Russia’s full-scale invasion of Ukraine — supply diversification, decarbonisation and lower consumption — has left the bloc better placed to absorb the current shock than in 2022. Employment growth, which added more than a million jobs in 2025, is nonetheless forecast to slow to 0.3% in 2026.