Interview with Le Temps
The European Central Bank warns energy price shocks are persisting longer than expected, pushing inflation higher and weighing on growth, though government spending and AI may cushion the impact.
The ECB reports a second wave of energy price increases, including oil and gas, following earlier optimism after a June agreement between the United States and Iran. This has led the bank to revise its assessment, now expecting the energy shock to last longer than previously anticipated, with inflation remaining elevated before easing toward target from mid-2027. Markets had earlier expected a peak in June followed by recovery, but geopolitical risks have since intensified.
While energy prices have risen again, the ECB notes no immediate spillover into electricity or services prices between February and now. However, it warns of upward pressure on food, broader energy, and goods prices due to the renewed energy shock, while services inflation remains contained. The ECB highlights that the economy has shown resilience so far despite these pressures.
The ECB expects the European economy to grow at a steady but modest pace if the energy shock does not worsen, supported by government spending such as Germany’s infrastructure and defense package and the Next Generation EU programme. European firms involved in AI may also contribute positively, though the net effect of AI on employment remains uncertain.
The ECB does not predict a full resolution to the crisis but expects some improvement later this year based on market expectations for oil and gas prices. It cautions that uncertainty remains high due to ongoing geopolitical tensions, while acknowledging temporary fiscal support and potential long-term benefits from AI adoption across the economy.