ECB Policymaker Warns of Pessimistic Euro Zone Outlook

LJUBLJANA, April 1, 2026 — A European Central Bank policymaker warned on Wednesday that the euro zone economy appears headed toward a more pessimistic outlook than previously projected, with inflation risks accelerating due to elevated energy prices from the ongoing war in Iran, potentially necessitating interest rate hikes in the coming months.

Primoz Dolenc, a member of the ECB's governing council, stated in an interview that the bank's baseline economic scenario, which anticipates inflation at 2.6 percent for 2026, may now resemble a best-case outcome. Instead, the adverse scenario — featuring prolonged higher inflation and reduced growth — seems increasingly likely. This shift stems from inflation surpassing the ECB's 2 percent target last month, driven by surging energy costs amid the conflict. The ECB has outlined alternative projections, including severe cases that could amplify price pressures and economic slowdowns.

Dolenc highlighted the danger of "second-round effects," where rising energy prices prompt businesses and households to adjust wage and price expectations upward, embedding inflation more deeply. He noted that such effects could materialize faster than...