Author: Gary Skedge, Head of UK Liquidity Strategies, Federated Hermes
The eurozone is facing deepening economic woes from the conflict in the Middle East as surging energy prices choke growth.
The bloc’s economy expanded by only 0.1% in the first quarter, while inflation rose to 3% in April, its highest level since September 2023.
The labour market has held up better. Unemployment fell to 6.2% in March, helped by modest hiring in Spain and Italy across tourism and services. But other indicators are softer. Manufacturing is still expanding, though more slowly, while business confidence has weakened, particularly in services and construction.
At the start of the year, the EU was forecast to grow by 1.4% in 2026, with inflation a little above 2%. But in May, the European Commission slashed its forecasts to 1.1% GDP growth and raised its inflation expectations to 3.1% because of the energy shock. Unemployment is also expected to rise.
