Published on 12/6/2026
The International Monetary Fund lowered its forecasts for the growth of the euro zone economy during 2026, and raised its inflation estimates, warning that the war in the Middle East and high energy prices are putting increasing pressure on the economies of European countries.
The Fund said in its periodic report on the economy of the twenty member states of the euro zone that the expected economic growth during the year 2026 declined to 0.9%, compared to previous expectations of 1.1% issued last April.
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On the other hand, the Fund raised its expectations for the inflation rate to 2.8% during the current year, compared to 2.6% in its previous estimates, noting that the energy shock resulting from the US-Israeli war on Iran contributed to increasing price pressures.
Energy shock
The IMF described the war on Iran as a “large but temporary negative supply shock,” explaining that it weakened consumer and business confidence and tightened financial conditions, while raising energy prices and production costs.
The report indicated that the continuation of energy supply disruptions for a longer period may push inflation to higher levels, and may lead to higher inflation expectations among households and companies, which further complicates the task of monetary policy makers.
The Fund also warned that renewed conflict in the Middle East, delayed reform of the energy infrastructure, or the escalation of the war in Ukraine may exacerbate the pressures on the European economy during the coming period.
The Fund expected that the European Central Bank would continue to tighten its monetary policy after its recent decision to raise interest rates by 25 basis points, likely implementing additional increases totaling 50 basis points during 2026, with the possibility of a third hike if inflationary pressures continue.
The International Financial Corporation explained that interest rates may need to be at more stringent levels to prevent the energy shock from spreading into a broader wave of price increases in various sectors of the economy.
On the other hand, the Fund warned euro zone governments against resorting to large-scale support programs to compensate for the rise in energy prices, considering that such measures may weaken incentives to rationalize consumption and increase pressures on public finances.
Limited support
The report indicated that until May 2026, European Union countries had approved energy support measures equivalent to an average of about 0.1% of gross domestic product, calling for any future aid to be directed more precisely towards the most affected families rather than providing comprehensive support.
The International Monetary Fund stressed that the current priority is to maintain the stability of inflation expectations, while continuing to implement structural reforms aimed at enhancing energy security, raising productivity, and strengthening the European economy’s ability to confront external shocks.
He also called for accelerating investment in renewable energy and reducing dependence on fossil fuels, while enhancing the integration of European markets and supply chains, in a way that supports long-term economic growth and reduces the impact of fluctuations in global energy markets.
