The war in Iran and the energy crisis resulting from the closure of the Strait of Hormuz are already being felt in the pockets of European citizens. The European Commission has lowered the economic forecasts for the eurozone this spring by three tenths, from 2.3% to 0.9% for this year, while inflation rises from 1.9% to 3% due to high fuel prices. This is something that the Economy Commissioner, Valdis Dombrovskis, had already been warning about: the risk of a “stagflation” scenario, with low growth and high inflation, with consumer prices through the roof.
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Spain resists the bad numbers and remains the country with the highest growth among the major powers of the EU, which as a whole will increase by 1.1%. Brussels considers that the expansion of the Spanish economy is robust, and even makes a slight upward revision of the 2026 outlook due to a “strong carry-over effect” from the previous year. If in autumn the Commission estimated that Spain would grow by 2.3% this year, in the spring economic forecasts it indicates that it will grow by 2.4%, mainly driven by “the growth of private consumption and investment.” According to current forecasts, this growth will slow to 1.9% in 2027.
Risk of “stagflation”
Inflation rises across Europe due to the impact of energy prices
However, Spanish inflation has been significantly revised upwards, by one percentage point, from 2 to 3%, as has happened in the rest of European countries due to the impact of the Middle East conflict. The war and the measures adopted in March to mitigate its effects, such as VAT reductions on energy and aid to electro-intensive sectors, have caused public deficit forecasts to increase from 2.1 to 2.4% of GDP, while the current forecast places debt at 99.6% of GDP in 2026, managing to fall below the 100% threshold requested for the first time since 2019.
“Despite the uncertain geopolitical environment and the drag exerted by high energy prices, economic activity will remain relatively buoyant in 2026,” reads the community document, which also highlights employment growth of 2.3% — compared to the 1.9 calculated in autumn — due to the “strong positive carry-over effects” of past employment growth.
Spain remains the unemployment champion of the entire EU, but the unemployment rate is expected to fall to 9.9% this year, below 10% for the first time since 2008. Among the main risks facing the Spanish economy, Brussels points to tourism and its impact from energy prices, noting a “possible weakening of tourism activity, which would especially affect arrivals from long-distance destinations due to higher travel costs.”
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Although Poland enjoys a similar outlook to the placid Spanish numbers, they are exceptions within a European economy that was already showing signs of fatigue and is now weighed down by energy prices. Spanish growth is much higher than projected for Germany (0.6%), France (0.8%) or Italy (0.5%), the three main markets of the community bloc. In fact, forecasts for the German locomotive have been lowered by six tenths due to the energy shock, deepening the crisis that Berlin was already experiencing due to the slow recovery after the pandemic and weakness in exports due to Chinese competition and US tariffs.
Blow to the locomotive
Energy prices deepen the crisis in the German economy, affected by Chinese competition and tariffs
The current numbers are, however, less drastic than those predicted by Dombrovskis, who had prepared European governments for reduced growth of up to 0.6%. According to the community document, the current situation is different from the last energy crisis with the war in Ukraine, since now “it is transmitted through globally traded energy commodities” and therefore, “it is distributed more evenly throughout the global economy, unlike the 2022 shock, which was caused by the restriction of Russian gas supply by pipeline.” The growth calculated for the eurozone for 2027 will be 1.2%, 1.4% for the entire EU.
“The EU’s investment in energy resilience, especially after Russia’s large-scale invasion of Ukraine, is paying off,” indicates Brussels. The reading is that the push “towards supply diversification, decarbonization and energy consumption reduction” has placed the EU economy in a better position to absorb the current crisis.
