The EU’s economic commissioner told CNBC that the bloc would revise its growth forecasts downward, citing the “stagflation shock” caused by the Iran war.
European Commissioner for Economy and Productivity Valdis Dombrovskis told CNBC’s Charlotte Reid that economic growth will be revised downward and inflation will be revised upward in the spring forecasts to be released later this week.
“We are facing the shock of stagflation,” he said on the sidelines of the G7 finance ministers’ meeting in Paris on Monday.
Concerns about stagflation have increased in recent weeks. A lasting solution to the Middle East wars is proving difficult, with oil prices still above $100 per barrel as the vital Strait of Hormuz remains closed.
Dombrovskis added that policymakers’ room for action is “now more limited”, leaving little room for a broad fiscal response of the kind seen during the coronavirus pandemic.
“We think it’s important that the support measures we put in place are temporary and targeted and do not actually sustain high demand for fossil fuels,” he added.
Strategists have warned that global oil reserves are depleting and stocks may not recover until December 2027, with physical shortages looming in Europe by the end of this month.
The International Energy Agency warned in its latest monthly update that global oil stocks are falling at a record pace. “If the buffer shrinks rapidly amid continued turmoil, it could foretell future price increases,” the IEA said.
Dombrovskis said the release of the EU’s strategic oil reserves was “ongoing”, adding that there were concerns about shortages in areas such as innovation fuels.
“The longer the conflict lasts, the greater the risk of some supply bottlenecks. This reinforces our message that policy responses should not increase demand for fossil fuels.”
