QNB: External Energy Shock Could Force ECB Policy Shift

Doha, Qatar: Qatar National Bank (QNB) has warned that an external shock in the energy sector could push the European Central Bank (ECB) into a difficult policy trade-off, as rising inflation risks collide with weakening growth prospects.

In its weekly report, QNB said persistently elevated energy prices could trigger a renewed monetary tightening cycle, potentially derailing expectations of policy stability in the euro area.

The report noted that the ECB had, over the past two years, succeeded in anchoring inflation near its 2% target following an aggressive and unprecedented tightening cycle that lifted the deposit rate to 4% in response to inflation shocks driven by the COVID-19 pandemic and the Russia-Ukraine war.

However, the bank said the ECB only began easing policy cautiously in June 2024, as confidence grew that inflationary pressures were receding. This led to a gradual reduction in the deposit rate to 2% -- a level broadly considered "neutral," neither stimulating nor restraining economic activity.

At the start of 2026, baseline expectations pointed to inflation stabilizing near target, allowing monetary policy to remain steady while euro area growth recovered modestly, with real GDP projected to expand by 1.5%.

But QNB stressed that recent sharp disruptions in global energy markets -- linked to the escalating conflict in the Middle East since early March -- have materially altered the macroeconomic outlook. Supply disruptions and shipping constraints have driven a significant surge in oil and gas prices.

The report highlighted that the euro area remains particularly vulnerable to natural gas price shocks, given its central role in electricity pricing. This dynamic is expected to feed directly into inflation, forcing the ECB to reassess its policy trajectory.

QNB emphasized that, unlike the Federal Reserve, which operates under a dual mandate of price stability and maximum employment, the ECB's primary mandate is price stability. As a result, the ECB is likely to respond more decisively to inflation deviations -- even at the expense of growth.

Against this backdrop, QNB said the balance of risks is increasingly tilting toward a near-term tightening bias

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