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ECB warns climate and war shocks keep euro-area inflation volatile
The ECB said June projections lowered growth for 2026 and 2027 and lifted inflation, with energy-price scenarios driving outcomes.
In remarks, ECB executive board member Frank Elderson said two recent drivers of inflation volatility and economic uncertainty in the euro area are the war in the Middle East and risks from the climate and nature crises, which he linked to Europe’s ongoing reliance on fossil fuels.
Elderson argued that accelerating the transition to net zero carbon could help insulate Europe from energy and climate shocks, but he said achieving net zero requires a complementary mix of policies to be delivered in an orderly and relatively low-cost way.
He warned that fossil fuels continued to weigh on Europe’s economic prospects at the start of the year, citing how the Middle East-linked energy crisis has pushed oil prices higher again, threatened supplies of certain products, and increased uncertainty.
According to the ECB, June Eurosystem staff projections revised the baseline growth outlook down for 2026 and 2027 while raising inflation over the same period versus March, and scenario analysis showed that under an adverse case, 2027 growth could be 0.3 percentage points lower and inflation 0.7 percentage points higher than the baseline, with a severe scenario putting HICP inflation above 6% in early 2027.