Energy Shock From Iran War Weighs on EU05/21 06:04

   The European Union's executive commission cut its growth outlook and 
predicted higher inflation due to sharply higher energy prices from the war in 
Iran -- but said the economy will avoid an outright recession.

   FRANKFURT, Germany (AP) -- The European Union's executive commission cut its 
growth outlook and predicted higher inflation due to sharply higher energy 
prices from the war in Iran -- but said the economy will avoid an outright 
recession.

   "As a net energy importer, the EU's economy is highly susceptible to the 
energy shock caused by the conflict in the Middle East," the commission said in 
a statement Thursday. The rising cost of fuel "means higher household bills and 
surging business costs that reduce profits for many industries."

   The commission's spring forecast lowered the outlook for growth in the 21 
countries that use the euro to 0.9% for this year, from 1.2% in its autumn 
forecast, and to 1.2% from 1.4% for 2027. Inflation is now expected to reach 
3.0% for 2026, up from the earlier forecast of 1.9%.

   The new inflation figure exceeds the inflation goal of 2% set by the 
European Central Bank, and higher inflation expectations have led to 
predictions the ECB will raise its interest rate benchmarks this year to combat 
inflation.

   Oil prices rose sharply after risk of Iranian drone and speedboat attacks 
closed off most ship traffic through the Strait of Hormuz, the sea passage for 
about a fifth of the world's oil and natural gas. On top of that, news of the 
war has shaken consumer confidence, which fell to a 40-month low amid mounting 
fears of job losses and higher inflation.

   Still, the commission said the economy will continue to show modest growth 
and avoid an outright recession.

   It warned however that a downside scenario of a prolonged period of higher 
energy prices would push growth lower and inflation higher.

   The new inflation figure exceeds the inflation goal of 2% set by the 
European Central Bank, and higher inflation expectations have led to 
predictions the ECB will raise its interest rate benchmarks this year to combat 
inflation.

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