ECB Ups Growth and Inflation Projections Amid Energy Price Shock

The European Central Bank (ECB) has revised its growth and inflation projections, indicating a slower-than-expected dissipation of the war-induced energy shock. The bank expects inflation to remain high for some time, averaging 2.5% next year, up from the 2.3% forecast in June.

The ECB's underlying inflation is seen at 2.6% in 2027, above the 2.5% predicted earlier. Despite a relatively soft labor market, which limits the risk of a wage-price spiral, expensive energy may eventually lift the cost of other goods and services, forcing the ECB to tighten monetary policy further.

The bank's baseline projections show GDP growth at 0.9% in 2026 and 1.4% in 2027, while inflation is expected to average 3.0% this year and 2.5% next year. Core inflation is seen at 2.5% this year and 2.6% in 2027.