By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Martin Kocher said on Tuesday that if market expectations regarding the Iran conflict were to materialize, Austria’s economic growth would be 0.25 percentage points lower and inflation 0.5 percentage points higher.

Speaking to the media in Vienna, Kocher, who heads the Austrian National Bank, said that firms and households had been “very unsettled” in recent weeks amid rising energy prices, volatile financial markets and increased caution in investment and consumption decisions.

Kocher said the recent appreciation of the US dollar against the euro was something “that could be relevant” and also highlighted the importance of fertilizer availability in the medium term, noting that part of the fertilizers used in Europe passed through the Strait of Hormuz.

He outlined three scenarios currently considered by the Austrian central bank.

“[I]f current market expectations about prices – meaning that [energy] prices remain elevated for some time but decline again over the course of the year – materialize as we currently assume, then we would expect growth in 2026 to be a quarter of a percentage point lower than without this development and inflation to be about half a percentage point higher in Austria,” he said.

If energy prices were to remain at current levels until the end of the year, growth would be 0.5 percentage points lower and inflation would increase by 1 percentage point, he said.

The third scenario cited by Kocher envisaged a rapid end to the conflict and a new regime in Iran that could strengthen trade with Europe.

“[W]ith that we would practically see no or even slightly positive impacts in the short term, even this year, in Europe,” he said.

Kocher said it was “clear” that the environment for monetary policy in Europe had changed and called for “caution” in light of past experience.

It was better for the ECB to be “cautious rather than premature,” he said, adding that the central bank should avoid acting rashly and instead carefully assess scenarios while waiting for further developments.

The ECB’s current approach – which he described as meeting-by-meeting, data-dependent and able to react at any time with “full optionality in both directions” – was the appropriate way forward in the current situation, he said.

The ECB should adjust interest rates to prevent inflation from becoming entrenched, he said, adding that this now depended on developments in the Middle East and that the ECB was “prepared to react quickly and also clearly.”

 

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