ECB Waits for Signals from the Economy: War with Iran Raises Risks to Inflation and Growth in the Euro Area
By Krzysztof Kamiński | 20 April 2026
Overview
The European Central Bank (ECB) is currently in a cautious stance regarding the economic implications of the ongoing conflict in Iran. Policymakers are awaiting more data before making any significant decisions, as the situation is still evolving.
Supply Shock and Economic Growth
The war in Iran is characterized as a classic supply shock, which is expected to elevate energy and commodity prices, thereby increasing inflation risks while simultaneously threatening the already fragile growth in the euro area. The ECB is particularly concerned about the potential for a blockade of the Strait of Hormuz, which could exacerbate these issues.
Current Economic Conditions
According to Álvaro Santos Pereira, a member of the ECB’s Governing Council, the euro area economy is currently positioned between the ECB's baseline and adverse scenarios. Prior to the conflict, growth was around 1%, indicating limited recovery potential. The ongoing geopolitical tensions are likely to further weaken economic conditions.
Inflation Risks
The ECB is closely monitoring the situation, particularly the risk of entrenched inflationary pressures. The central bank is concerned that rising energy costs could lead to second-round effects, where inflation spreads to other sectors, resulting in persistent price increases.
Policy Response
Pereira emphasizes that the ECB will only react if there are clear signs of entrenched inflation and rising inflation expectations. If the data indicates that price pressures are temporary, the ECB will likely maintain its current cautious approach, especially with an upcoming interest rate decision.
Need for Structural Reforms
Beyond immediate monetary policy, Pereira advocates for structural reforms to enhance long-term growth in Europe. He suggests that completing the single market and fostering deeper economic integration could bolster Europe’s resilience to external shocks.
Conclusion
As the ECB remains vigilant, the impact of the Iran conflict on the euro area economy is still uncertain. The coming weeks will be crucial in determining whether the current disruptions are temporary or indicative of more persistent inflationary pressures that would necessitate a policy response from the central bank.