By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Fabio Panetta said on Thursday that the ECB’s adverse and severe scenarios linked to the Middle East conflict now appear more likely than when they were originally published.
In a speech at the XVI Conferenza MAECI – Banca d’Italia, Panetta, who heads the Italian central bank, said that even if the conflict were to end in the near term, restoring normal energy production would take time.
“Price increases are significant and are hitting above all refined products essential for industry and agriculture, where sharper supply bottlenecks are emerging,” he said.
The duration of the conflict had initially been underestimated and continued to lengthen, he said, adding that this increased risks to both extraction and distribution infrastructure.
According to Panetta, security conditions along key energy routes—especially the Strait of Hormuz—would be critical, as they would determine both the scale and persistence of the global energy shock.
“The macroeconomic projections of the European Central Bank, released two weeks ago, already included two unfavorable scenarios, today more plausible than they were at the time of publication,” he said. “In the first, energy supply from the Gulf would normalize in the fourth quarter of 2026; in the second, more severe, damage to infrastructure would delay recovery to 2027.”
He said that the economic impact of these scenarios would be significant: euro area GDP would be 0.4 percentage points lower over 2026–27 in the adverse scenario compared with the baseline, and 0.9 percentage points lower in the severe scenario.
Inflation, he added, would increase by around 1 percentage point in the adverse case and by more than 4 percentage points in the severe one.
“The increase in inflation in the euro area in March – to 2.5%, from 1.9 in February – highlights the intensity and speed of transmission of the energy shock, whose effects will likely also emerge in the data of the following months,” he said, noting that leading indicators, especially the fall in household confidence, suggested a potential slowdown of the real economy.
Panetta also warned that tensions in energy markets were not only affecting inflation and growth but could also pose risks to financial stability.
He said that elevated volatility and uncertainty, combined with existing vulnerabilities, could amplify the impact of shocks across the financial system.
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