David McNamara: Central banks muddling through amid developing oil shock

No region will be spared the economic impact of a long-lasting war

ECB president Christine Lagarde. The ECB ‘severe’ scenario sees oil peaking at $145/barrel and natural gas at over €100/kw. Picture: AP Photo/Michael Probst

With no moves expected from the world's biggest central banks meetings last week, markets were closely watching for any hints of an imminent shift in monetary policy on the back of the Middle East conflict. With such a volatile situation unfolding in the region, and influencing global energy markets, the various central bank leaders could be forgiven for seeking a bridge to a potentially calmer environment later in the spring.

Most revealing of the major central banks was the European Central Bank, which published several scenarios based on the potential paths for oil and gas prices. Its ‘severe’ scenario, which has oil peaking at $145/barrel and natural gas at over €100/kwh, leads to a sharp rise in inflation, reaching a high point of around 6.5% in early 2027. Unemployment rises towards 7% from the current 6%, and GDP growth is severely blunted in both 2026 and 2027.