Although energy commodity prices are expected to gradually decline, the Commission estimates they will remain around 20% above pre-war levels. This continued pressure is already feeding into inflation, which is seen as a key factor limiting growth.
The Commission also highlights the risk of a more negative scenario if the conflict persists. In such a case, energy prices would remain elevated, inflation would not ease and economic activity would fail to recover by 2027. Higher costs could force households and businesses to cut consumption and redirect spending towards investment.
Economic prospects have shifted significantly since early 2026, when the EU was expected to maintain moderate growth alongside easing inflation. Instead, the sharp rise in energy prices has reversed that trend, pushing inflation higher just weeks after the conflict began and slowing overall economic momentum.
EU growth reached 1.5% in 2025 but is now forecast to slow to 1.1% in 2026, a downward revision from earlier projections. Growth is expected to recover slightly to 1.4% in 2027. Similar downward revisions apply to the eurozone, where growth is projected at 0.9% in 2026 and 1.2% in 2027.
As a net importer of energy, the EU remains particularly exposed to external shocks. The report notes that this is the second major energy shock in less than five years. Rising energy costs translate into higher bills for households and increased production costs for businesses, reducing profitability and effectively transferring income to energy-exporting countries.
Inflation across the EU is expected to reach 3.1% in 2026, one percentage point higher than previously forecast, before easing to 2.4% in 2027. In the eurozone, inflation is projected at 3.0% in 2026 and 2.3% in 2027. Consumer confidence has fallen to its lowest level in over three years, while tighter financing conditions and rising uncertainty are weighing on investment.
Employment growth is also expected to slow, rising by just 0.3% in 2026, down from 0.5% in 2025. Unemployment is forecast to stabilise at around 6% by 2027.
Public finances are under increasing strain. The EU’s general government deficit is projected to widen from 3.1% of GDP in 2025 to 3.6% by 2027, driven by weaker economic activity, higher interest costs, energy support measures and increased defence spending.
Public debt is also expected to rise, with the EU’s debt-to-GDP ratio increasing from 82.8% in 2025 to 85.3% in 2027. In the eurozone, the ratio is forecast to climb from 88.7% to 91.2%. By 2027, four member states are expected to have debt levels exceeding 100% of GDP.
The Commission warns that the main risk to the outlook remains the duration of the Middle East conflict and its impact on global energy markets. In a prolonged disruption scenario, energy prices could rise significantly above current projections, peaking towards the end of 2026 before gradually stabilising.
Such developments would intensify supply constraints, particularly in sectors reliant on refined oil products and fertilisers, with ripple effects on global supply chains and food affordability.
The Commission also notes that weakening labour demand and ongoing uncertainty in global trade policies could further dampen economic activity. It calls for faster implementation of structural reforms to address long-standing growth challenges, while highlighting that strong public investment in areas such as defence and the energy transition could help offset some of the expected weakness in the private sector.
Source: CNA
