Bloomberg has warned that a protracted war between the United States and Iran could derail the nascent economic recovery in the euro area. The next four weeks will determine how resilient growth in the bloc is to a fresh energy price shock.
ING analyst Karsten Brzeski notes that the EU’s dependence on oil and gas from the Persian Gulf makes the bloc particularly vulnerable. If the conflict lasts longer than US President Donald Trump has suggested, the result would be a period of elevated energy prices that would force European governments to increase spending to protect households.
Before the Iranian crisis, prospects looked promising. Rising spending in Germany and other countries was expected to support modest growth, and inflation was approaching the 2-percent target. However, the escalation in the Middle East and the US Supreme Court’s rollback of Mr. Trump’s earlier tariffs have heightened experts’ concerns about the EU’s economic trajectory.
