Eurozone Growth Slows as Energy Costs Drive Inflation Higher

The eurozone economy grew by only 0.1% in the first quarter of 2026, missing forecasts of 0.2%, as conflict in the Middle East disrupted oil and gas shipments through the Strait of Hormuz. This geopolitical instability pushed Brent crude prices above $120 a barrel and increased European Union spending on energy imports by 27 billion euros since February. Consequently, annual inflation rose to 3.0% in April, driven by a 10.9% surge in energy costs.

Economic impact varied by member state. France's economy stagnated with flat GDP growth, while Italy's growth slowed to 0.2%. Germany's recovery lost steam, prompting the government to halve its 2026 growth forecast to 0.5%. In contrast, Greece faced a significant inflation spike to 4.6%. The French government rejected broad tax cuts to combat these pressures, instead implementing targeted support for small businesses and the transport and agriculture sectors.

Christine Lagarde, President of the European Central Bank, maintained the key interest rate at 2.0% and lowered growth forecasts for 2026 and 2027. While the European Central Bank warned that risks to inflation and growth have intensified, Lagarde rejected claims that the region has entered a state of stagnation or recession. The bank stated it remains positioned to manage the current uncertainty despite pressures from falling profits and weakening business sentiment.