1 Overview  2

2 Macroeconomic projections for the euro area economy  5

2.1 Real economy  5

Box 1 International environment  11

Box 2 Technical assumptions  12

2.2 Prices and costs  14

Box 3 Fiscal outlook  23

3 Alternative scenarios for the economic impact of the Middle East conflict  25

3.1 Key assumptions underlying the alternative scenarios  26

3.2 Macroeconomic implications  30

Box 4 Calibrating indirect and second-round effects on euro area nonenergy inflation in the alternative scenarios  32

3.3 Sensitivity analyses of energy supply and jet fuel disruptions

under the severe scenario  39

3.4 Caveats to the scenario analysis  40

4 Sensitivity analyses  41

4.1 Alternative energy price paths  41

4.2 Alternative exchange rate paths  43

Box 5 Comparison with forecasts by other institutions and the private sector  44

Box 6 An update on the performance of Eurosystem/ECB staff projections for growth and inflation  45