OECD cuts eurozone growth forecast amid price pressures

The conflict in the Middle East is already having a noticeable impact on the eurozone economy, with inflation accelerating to 2.5 per cent in March. The main driver has been a sharp rise in energy prices, which increased by 6.8 per cent month on month.

Although energy has a relatively small weight in the consumer basket, its influence on inflation expectations is significant. This is feeding into weaker consumer sentiment, as households begin to anticipate a deterioration in both the economic outlook and their own financial situation.

According to Richard Kubas, an analyst at the Ministry of Finance’s Institute of Financial Policy, the impact varies across countries. Slovakia is among the less affected, as its energy prices are more closely tied to forward contracts. Nevertheless, the OECD has downgraded its eurozone growth forecast to 0.8 per cent while raising its inflation projection.

The fertiliser market also remains a risk. Disruptions in the Strait of Hormuz have constrained a significant share of supply, pushing prices higher. This could, in time, translate into more expensive food and add further pressure on inflation.

(tasr, pir)