ECB’s de Guindos: Mideast Conflict ‘May Well Have a Dampening Impact on Growth’

26 June 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Vice President Luis de Guindos said on Thursday that the Iran-Israel conflict could impact negatively on the Eurozone economy.

In a speech at the Deutsche Bank Forum 2025, de Guindos said that the ‘outbreak of the recent conflict in the Middle East after the release of our projections adds some uncertainty regarding energy price developments and the possible obstruction to trade routes.’

Markets had been reacting in a ‘surprisingly calm’ and ‘benign’ way to these developments, according to de Guindos, who said that investors tend to price in geopolitical risk with a relatively measured response.

‘While it is impossible to predict what will happen, developments may well have a dampening impact on growth in the euro area’, he said.

It was crucial that the ECB monitored the reaction of the European economy to these developments as that would be considered ‘partly as an early indicator for the inflation outlook’, he said.

Inflation was now ‘around’ the 2% target and indicators of underlying inflation pointed towards a likely stabilisation around 2%, he said.

Services inflation, which had been one of the main sources of concern for the ECB months ago, was having a ‘quite positive’ evolution, according to de Guindos.

‘[W]e believe that we are very close to our target’, he added. ‘Nevertheless ... there is a lot of uncertainty and there are potential shocks that could give rise to modification of this evolution.’

The ECB was monitoring these risks very closely, he said.

US tariffs could be disinflationary and dampen growth in the short- and medium-term, according to de Guindos, who was more unsure about the impact of the increase of German fiscal expenditures.

‘We will have to see what’s going to be the pace of implementation of the fiscal policies and stimuli that has been put in place in the case of Germany’, he said. ‘But we believe we are in a good position.’

The ECB would especially consider the potential implications of the outcome of trade negotiations between the EU and US and what would happen with respect to China, he said.