ABN AMRO economists revised their Eurozone outlook after an Iran-related energy shock, forecasting weaker growth and higher inflation. They expect tighter policy in the near term to reduce the risk of inflation feeding into wider price and wage setting. Inflation is forecast to move above the ECB’s 2% target from March and peak above 3% in the following months, as higher energy costs pass through. Extra upward pressure is expected from food prices linked to higher fertiliser costs, and from energy-intensive goods.

Policy Outlook After The Energy Shock

The bank expects the ECB to raise rates in April and June, taking the deposit rate to 2.50%. It assigns more certainty to an April rise than a June move because of conflict uncertainty. By early 2027, ABN AMRO expects the ECB to begin easing towards a neutral stance as inflation stays close to target. It forecasts one rate cut in Q1 2027 and one in Q2 2027, bringing the deposit rate back to 2%. We are now looking at how the Iran-related energy shock of 2025 played out against expectations from that time. The forecast for two European Central Bank rate hikes in the second quarter of 2025 proved accurate, as we saw the ECB act decisively to combat rising inflation expectations. That front-loading of rate hikes has set the stage for our current market environment. Given that the ECB deposit rate has been held at 2.50% since June 2025, the focus now shifts to the timing of future cuts. Eurostat’s latest flash estimate for March 2026 shows headline inflation has cooled to 2.4%, down from the peak of 3.2% we saw last year. This steady decline supports positioning for lower rates, potentially by receiving fixed rates on interest rate swaps dated for early 2027.

Market Implications And Trading Considerations

The prediction for weaker growth was also correct, with Eurozone GDP growing by a mere 0.5% in 2025. Recent data shows a fragile recovery, as Germany’s March 2026 manufacturing PMI came in at 49.8, still signalling a slight contraction. Traders should consider buying put options on the EURO STOXX 50 index to hedge against any further economic disappointments. Brent crude, which spiked to over $110 a barrel during the 2025 crisis, has since stabilized and is currently trading around $85. While the immediate shock has passed, the higher food and goods prices it caused are only now fully receding. The lower implied volatility in the energy markets makes selling covered call options on oil futures a potentially viable strategy to generate income. The original analysis anticipated rate cuts beginning in early 2027 to a neutral rate of 2%. However, recent ECB commentary has been more cautious, linking any cuts directly to wage growth data, which remains elevated at 4.1% year-over-year. This uncertainty suggests the predicted cuts could be delayed, making options that profit from range-bound interest rates, like short strangles on Euribor futures, more attractive. Create your live VT Markets account and start trading now.

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