Eurozone Faces Stagflation Shock From U.S.-Iran Tensions, Analyst Says

DBS Bank analyst Radhika Rao said rising U.S.-Iran tensions could deliver a stagflation shock to eurozone markets and hit Europe harder than the United States, potentially pushing the European Central Bank to tighten policy earlier. According to Jin10, Rao expects the ECB to raise its deposit rate by 25 basis points to 2.25%, while keeping policy guidance cautious and hawkish. She said further rate increases could still be possible in the second half of the year, but the ECB is likely to proceed on a meeting-by-meeting basis. Rao added that policymakers would closely watch the prospects for a U.S.-Iran ceasefire and any easing of tensions. Rao also lowered her expectation for eurozone economic growth in 2026 to 1.0% and said inflation is expected to rise.