The European Central Bank has warned of downside risks to euro area growth and upside risks to inflation, citing persistent geopolitical uncertainty including Russia's war on Ukraine and Middle East instability. A durable resolution to Middle East conflict, the ECB said, would reduce risks to both growth and inflation.
Euro zone inflation fell to 2% this summer, nearing the ECB's target after the central bank halved interest rates to 2% in the year through June. National readings were mixed: Italian inflation eased to 1.7% in July, French price growth held at 0.9%, and Spanish inflation climbed to 2.7%. Markets now see less than a 50% chance of another rate cut this year and are pricing in a potential increase by late 2026.
Meanwhile, an ECB study found that lower-income households spend 9% of their budget on energy — well above the 5.5% average — with median savings rates turning negative at roughly -5.8% of disposable income. Brent crude remains 1% below its mid-June level despite volatility linked to U.S.-Iran tensions and resumed military strikes.