The US-Iran war that began on February 28, 2026, is significantly changing how European businesses approach pricing, costs, and their economic forecasts. According to the European Central Bank's latest quarterly survey, there has been a noticeable increase in short-term inflation and cost expectations. The energy sector, in particular, is experiencing the most severe impact from these changes.
#What Insights Does the ECB Survey Provide?
The ECB conducted a Survey on the Access to Finance of Enterprises, referred to as SAFE, from February 19 to April 1 for the first quarter of 2026. This timing is critical as it captures both the pre-war and post-war sentiment of firms, allowing for a direct comparison of data.
Before the onset of conflict, enterprises anticipated a 2.9% increase in selling prices over the next year. After the war commenced, this expectation rose to 3.5%. Similarly, one-year inflation expectations increased from a median of 2.5% before the conflict to 3.0% thereafter.
Inflation expectations over three-year and five-year periods, however, showed no significant change, indicating that businesses view the current situation as a shock instead of a long-term adjustment. Interestingly, anticipated wage costs declined slightly to 2.8%. The survey also highlighted a pessimistic outlook regarding company turnover, investment opportunities, and access to loans from financial institutions, particularly in energy-intensive sectors.
#How is the ECB Revising Its Economic Forecasts?
In light of these findings, the ECB has adjusted its inflation projections for 2026 to a headline figure of 2.6%, with a notable spike expected in the second quarter reaching 3.1%. The ECB's inflation target stands at 2.0%. Furthermore, GDP growth estimates for the euro area have been downgraded to 0.9% for the year.
The ongoing conflict in the Middle East is disrupting oil supplies and driving energy prices higher. This escalation leads to increased input costs across supply chains, affecting manufacturers, logistics firms, and eventually retailers. Moreover, energy-intensive industries such as chemicals, metals, glass, and heavy manufacturing are feeling the pressure first, though the expectation of rising costs appears to be extending beyond these sectors.
#What Should Investors Consider?
The anticipated inflation surge in Q2 could lead to complex discussions regarding interest rates. Should the ECB decide to maintain higher rates or even increase them, this would likely tighten financial conditions and dampen investor appetite for riskier assets, including cryptocurrencies. Historically, the crypto market has been sensitive to liquidity changes, and tighter financial conditions tend to be negative for this sector.
It is also important to monitor the stability of long-term inflation expectations. If projections for three- and five-year periods begin to rise, this could indicate that businesses perceive inflation as a more permanent issue rather than a temporary fluctuation. A temporary inflation shock supports a wait-and-see approach, while persistent inflation would necessitate a strategic repositioning.
Finally, the forecasted GDP growth of just 0.9% invites scrutiny over whether participation in the crypto market will diminish, particularly if European households face tighter budgets due to rising costs and stagnant wages.