Societe Generale’s team notes that the European Central Bank’s (ECB Economic Bulletin stresses that a Middle East-driven Oil shock would hit inflation more than activity, but confidence effects could weigh on 2027 growth. They add that if business surveys show only small activity moves but renewed price pressures, this would largely cement expectations for an ECB rate hike in June unless geopolitical tensions ease sharply.
Oil, confidence and rate expectations
“The ECB also published its Economic Bulletin and one (out of several as always) interesting piece was on “how the war in the Middle East could affect household savings and the economy”.”
“While it confirmed that the oil price shock would be larger on inflation than on activity, it pointed out that the hit to activity could be much larger if household confidence were to overreact.”
“However, the hit to activity from lower confidence would take more time to filter through with little impact on 2026 GDP growth but a large one on 2027 growth.”
“If they pick-up again, and if the impact gets broader in services, this will obviously be seen as an ominous sign by central bankers.”
“In any case, if moves are small on activity indexes and if prices indexes continue to point upwards, it will help remove residual doubts about a June rate hike which only a sudden and clear détente in the Middle East could then possibly prevent.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
