17m ago
10.59 GMT
The
eurozone is the major economy that is most exposed to the Iran crisis, Dutch
bank ING says.
In a new
research note, ING explain that military action in the Middle East could have
significant implications for the global economy and markets.
Those
“macro consequences” will hit hardest in Europe, where the timing could not be
worse.
They
write:
The
eurozone was finally emerging from its long period of stagnation, with
tentative green shoots of recovery emerging – though recently, these have been
undermined by new uncertainty regarding tariffs. Now the region could face an
energy shock on top of a trade shock.
Europe
imports essentially all of its oil and a significant share of its LNG. A surge
in energy prices and potentially even energy supply disruption could bring back
memories of the energy cost crisis from late 2021 to 2023. There are currently
two important differences compared with the situation back then: Europe doesn’t
have to ‘derisk’ from a single important energy provider; and the oil price
crisis comes at the end of the winter, not the start.
This puts
the European Central Bank in “a genuine dilemma”, ING add:
Services
inflation is still sticky, and an oil shock would push headline inflation
higher – yet the growth outlook is simultaneously deteriorating under the
combined weight of tariffs, uncertainty, and now energy costs. Back in
December, an ECB analysis showed that a 14% increase in oil prices would push
up inflation by 0.5ppt and could reduce GDP growth by 0.1ppt.
However,
this would only be the price effect, not the supply chain disruption effect.
Given the still relatively fresh memories of the recent inflation surge, the
ECB is unlikely to see any new oil price-driven inflation spike as transitory
or even deflationary. However, to see a rate hike, the eurozone economy would
have to show clear resilience.
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