Iran War Impact on Europe's Economy Proves More Mild Than Feared

Europe's economy has surprisingly shown resilience six months into the Iran war. Inflation hasn't risen as steeply as expected, and growth has held up.

By July 2022, energy was contributing four percentage points to eurozone inflation. Today, it adds less than a quarter of that.

The ECB has been concerned about stagflation, but the data suggests otherwise. Energy-sensitive inflation hasn't risen, and food prices are actually lower than they were three months ago in Britain.

Central bank hawks still worry about the upside risks to inflation due to lags. However, growth is largely driven by low inflation, not a strong economy. The war has helped European manufacturers win orders from Asian competitors affected by the Strait of Hormuz closure.