Eurozone Economy Faces Two Major Risks: Middle East Conflict and US Asset Sell-off, Says ESM

Macro
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The European Stability Mechanism said in a report released on the 6th that a new conflict in the Middle East and an asset sell-off in the United States are the two major risks for the eurozone, and if they occur simultaneously, they could push the eurozone into recession and drive inflation close to 5 percent. It noted that the eurozone's GDP exposure to the US has risen from 18 percent in 2013 to 47 percent last year, and that political and fiscal uncertainty as well as the surge in AI-related stocks could trigger a sharp asset price correction originating in the US. The report also mentioned the possibility of a new energy shock in the Middle East, and said that if both risks materialize, eurozone GDP growth could be limited to just 0.6 percent in 2026 and contract by 0.4 percent in 2027.

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