IMF warns that war-related energy shock is pushing inflation higher in Europe

The International Monetary Fund (IMF) has projected slower economic growth and higher inflation for Europe in 2026 due to an energy shock stemming from the Middle East conflict.

Alfred Kammer, director of the European department at the IMF, said the region faces a new economic challenge that demands robust macroeconomic policies and structural reforms.

Kammer noted that the European Union expects a growth rate of only 1.3% for the current year.

The institution warned that a severe scenario involving a persistent supply shock and tightening financial conditions could push inflation near 5% and drag the EU close to a recession.

The IMF's inflation forecast for 2026 was at 2.6% for the euro area, higher than 2.1% in 2025.

The fund's expectation was at 2.2% for Nordic economies, 10.8% for the emerging European economies, 4.4% for the world, and 2.8% for advanced economies.

ECB plan to increase rate

The report highlighted that untargeted energy support measures disproportionately benefit higher-income households.

European governments previously spent an average of 2.5% of their GDP on energy support packages during the 2022 energy crisis.

The international body advised policymakers to avoid broad price caps and instead implement targeted and time-bound support.

The organization said that central banks must maintain a strict focus on anchoring inflation expectations.

The report indicated that the European Central Bank planned a cumulative 50-basis-point increase in its policy rate by the end of this year.

Kammer emphasized that countries carrying high debt lack the fiscal space to widen their deficits and must offset any energy-related measures.

Forecasts indicated that inflation in Türkiye -- relatively less affected by the war -- will drop to 28.6% in the same year.