By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Dimitar Radev said on Monday that the medium-term economic effects of the Middle East conflict will depend on how long it lasts and how strongly it feeds into inflation and growth.
Speaking at a meeting organized by the Bulgarian Spirit Diplomatic Society in Sofia, Radev, who heads the Bulgarian National Bank, said that elevated uncertainty was being transmitted more rapidly through the economy.
“Developments that were previously perceived as external shocks are now feeding directly into inflation expectations, energy prices, financing conditions and broader confidence,” he said.
Radev stressed that geopolitics was no longer a background factor but an active driver of macroeconomic developments, particularly when conflicts disrupt energy markets and supply chains.
He warned that Bulgaria must avoid adding “domestic ambiguity” amid already elevated global uncertainty, as this could further weaken confidence and economic outcomes.
Referring to the ECB’s March meeting, Radev said policymakers expected the conflict’s short-term impact to come mainly through energy prices. Over the medium term, however, effects would depend on how persistent the conflict is and how much it passes through to consumer prices and economic activity, he added.
“Against that background, the Governing Council decided to leave the key interest rates unchanged and reaffirmed its commitment to stabilizing inflation at 2% over the medium term,” he said. “At the same time, it did not pre-commit to a specific future path of interest rates.”
Radev added that geopolitical shocks were no longer slow-moving but could now affect inflation, growth, and sentiment almost immediately through energy costs, supply disruptions, and security concerns.
Taking into account the recent energy price surge, the Bulgarian National Bank expected inflation to average 3.7% in 2026, gradually easing afterwards, he said. However, under more adverse scenarios, inflation could be 0.7 to 1.2 percentage points higher and remain elevated for longer, he added.
For Radev, this underscored that inflation risks were elevated, asymmetric and closely tied to geopolitical developments—making scenario analysis essential.
Related articles:
