The European Union is facing a growing risk of stagflation as a result of the war in the Middle East and the resulting surge in energy prices, according to European Economy Commissioner Valdis Dombrovskis. Speaking after a meeting of euro area finance ministers, he warned that the economic outlook is becoming increasingly uncertain, with the combination of slowing growth and rising inflation now a realistic scenario.

Dombrovskis explained that even if disruptions to energy supplies prove relatively short-lived, the impact on the European economy would still be significant. Current assessments suggest that EU economic growth in 2026 could fall by around 0.4 percentage points compared to earlier projections, while inflation may increase by up to one percentage point. In the European Commission’s autumn forecast, growth was expected to reach 1.4% in 2026 and 1.5% in 2027, with euro area growth at 1.2% and 1.4% respectively, and inflation hovering near 2%.

However, a more prolonged or severe disruption would deepen the negative effects. In such a scenario, growth across the EU could be reduced by as much as 0.6 percentage points in both 2026 and 2027. Updated external forecasts also point in a similar direction, with weaker growth and higher inflation linked directly to rising energy costs.

The issue has become central to discussions among EU leaders and finance ministers, as governments weigh how to respond to the pressure on households and businesses. Eurogroup President Kyriakos Pierrakakis stressed that any national support measures should be carefully designed – targeted at the most vulnerable, implemented quickly, but strictly temporary to avoid longer-term fiscal risks.

Officials also highlighted that many member states have limited fiscal flexibility after recent crises and face additional spending pressures, including higher defense budgets. There are concerns that poorly designed interventions could trigger further economic instability.

The current situation has reinforced calls for deeper investment in Europe’s energy independence and infrastructure, with policymakers warning that the bloc must avoid repeating past vulnerabilities. Further coordination is expected at upcoming international meetings, including discussions among G7 finance and energy ministers, as governments attempt to balance short-term relief with long-term economic stability.