---
source: European Central Bank
url: https://www.ecb.europa.eu/press/key/date/2026/html/ecb.sp260327~eca8717025.en.pdf
document_type: pdf (slides)
date_retrieved: 2026-03-27
period: March 2026
parent_publication: Speeches
indicators_covered: [Monetary Policy, Geopolitical Fragmentation, GDP Growth, HICP Inflation]
---

# Monetary policy in times of geopolitical fragmentation

**Isabel Schnabel, Member of the Executive Board of the ECB**  
**Guest lecture at Department of Economics at University of Zurich**  
**Zurich, 27 March 2026**

## [Content Summary from Slides]

The presentation addresses the challenges for monetary policy arising from geopolitical fragmentation, specifically referencing the impact of the ongoing conflict involving Iran. 

### Key Themes:
- **Staff Projections (March 2026):** Lower growth and higher inflation expected due to the "Iran war."
- **Real GDP Growth:** Euro area growth projections have been revised downwards. The vertical line in charts indicates the start of the March 2026 projection horizon.
- **HICP Inflation:** Inflation projections have been revised upwards, with severe scenarios showing significantly higher paths compared to December 2025 projections.
- **Geopolitical Risks:** Fragmentation and energy shocks are cited as primary drivers for the "Adverse" and "Severe" scenarios.

## [Full Text Extraction]

ECB-CONFIDENTIAL

Monetary policy in
times of geopolitical
fragmentation
Isabel Schnabel
Member of the Executive Board
of the ECB

University of Zurich
27 March 2026
1

www.ecb.europa.eu ©

Staff
projections see lower growth and higher inflation due to Iran war
Rubric
Real GDP growth in the euro area

HICP inflation in the euro area

(quarter-on-quarter percentage changes)

(annual percentage changes)

2.5

March 2026 staff projections
March 2026 staff projections - Adverse scenario
March 2026 staff projections - Severe scenario
December 2025 staff projections
GDP growth

12

2.0

10

1.5

8

1.0

6

0.5

4

0.0

2

-0.5
2021

2022

2023

2024

2025

2026

2027

0
2021

2028

Sources: Eurostat and Eurosystem staff projections (March 2026).
Notes: The vertical line indicates the start of the March 2026 projection horizon. The solid line
indicates published data, while the dashed lines indicate projections.
Latest observation: Q4 2025 (second estimate).

March 2026 staff projections
March 2026 staff projections - Adverse scenario
March 2026 staff projections - Severe scenario
December 2025 staff projections
HICP inflation

2022

2023

2024

2025

2026

2027

2028

Sources: Eurostat and Eurosystem staff projections (March 2026).
Notes: The vertical line indicates the start of the March 2026 projection horizon. The
horizontal dotted line indicates the 2% medium-term inflation target. The solid line indicates
published data, while the dashed lines indicate projections.
Latest observation: Q4 2025 (second estimate).
.

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Global
economy is shifting from globalisation to fragmentation
Rubric
Trade policy uncertainty

Euro area–US bilateral effective tariff rate

(index)

(percent)
14.0

2000

13.1

April tariffs

1800

12.1

12.0

1600

10.2

10.0

1400
Supreme
court
ruling

1200
1000

10.5

8.0
6.0

800
4.0

600

2.0

400
200
0
01/16

Iran
war
01/18

01/20

01/22

01/24

1.5

0.0
PreTrump

01/26
16/03/26

Sources: Bloomberg and ECB staff calculations.
Notes: Dark yellow line denotes the 30-day moving average of the trade policy uncertainty
index, whereas the light blue line represents the daily series.
Latest observation: 16 March 2026 (reporting lag).

March
September December
June
2026
2025
2025
2025
projections projections projections projections

Sources: Trade Data Monitor, White House, WITS and ECB staff calculations.
Notes: The effective tariff rate is calculated by weighting on 2024 US-reported import
values at the HS6 product level.

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Euro
area remained resilient due to robust domestic demand and strong labour markets
Rubric
Unemployment rate and employment

Real GDP and components

(lhs: percentages; rhs: millions of persons)

(year-on-year percentage changes; percentage point contributions)
Domestic demand (incl. inventories)
Net exports
Real GDP growth

Unemployment rate

Employment (rhs)

13

180

12

175

2.0

11

170

1.5

10

165

9

160

8

155

7

150

6

145

3.0
2.5

1.0
0.5
0.0
-0.5
-1.0
-1.5
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2023

2024

5
2000

2025

Source: Eurostat.
Latest observation: 2025 Q4.

140
2005

2010

2015

2020

2025

Sources: Eurostat and ECB staff calculations.
Last observation: 2025 Q4.

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Chinese
Rubric competition is weighing on euro area’s export performance
Global export market shares
of non-energy goods volumes

Number of product categories with comparative
advantage of both China and other countries

(percentage point change since 2010)
Euro area

United States

China

2000

8

70

2024

4

60
0

50

-4

40
30

-8

20
-12

10
-16
2010

2012

2014

2016

2018

2020

2022

2024

Sources: CPB, TDM and ECB staff calculations.
Notes: Long-run trends in export market shares in volume terms should be interpreted with caution. Euro area
export volumes and world import volumes are not fully consistent, as each statistical office employs specific
methodologies for deflating and outlier cleaning. These methodologies may differ in terms of outlier detection and
replacement and quality adjustment. Based on this, the volumes (excluding energy) series used to compute the
export market shares shown in the chart are calculated by taking CPB (CPB Netherlands Bureau for Economic
Policy Analysis) volumes (in 2005 chain linked billion euros) and subtracting the share of energy exports. This share
of energy exports is based on TDM (Trade Data Monitor) values and includes HS2 sectors 25, 26, 27, 97, 98, 99.
5
Latest observation: 2024.

0
Italy

Germany

Japan

France

Spain

US

Sources: UNCTAD and ECB staff calculations.
Notes: The chart shows comparative advantage, referring to the revealed comparative
advantage indicator, measuring the ratio between the share of country’s exports in a
particular product category in its total exports, and the same share for the world as a
whole. A country has comparative advantage if the value of this ratio is above 1.
Latest observation: 2024.
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Trade
patterns are shifting, with EU aiming at expanding trade agreements
Rubric
EU free trade agreements and their potential

Share of within-bloc trade

(percent)

(share of world trade)

Share of EA trade 2024

0.73

Share of world trade in 2030

30

0.71

25

0.69
0.67

20

0.65

15
0.63

10

0.61
0.59

5

0.57
0.55
1995

0
1999

2003

2007

2011

2015

2019

FTA in place

2023

Source: CEPII BACI.
Notes: Bloc definition based on countries’ ideal point distance in UN voting (Bailey et al., 2017)
relative to China and USA. The chart shows the share of world trade that involves two countries
that are in the same geopolitical bloc. There are two geopolitical blocks, which may be called
Western and non-Western bloc.
Latest observation: 2025.

6

FTA being
adopted or
ratified

FTA
negotiations

United States

Sources: European Commission , IMF WEO and Trade Data Monitor.
Notes: Trade includes exports and imports of goods. “FTA in place” includes Albania, Andorra,
Bosnia and Herzegovina, Canada, Switzerland, Chile, Colombia, Costa Rica, Ecuador, United
Kingdom, Georgia, Guatemala, Honduras, Iceland, Japan, South Korea, Moldova, Mexico,
North Macedonia, Montenegro, Nicaragua, Norway, New Zealand, Panama, Peru, Singapore, El
Salvador, Serbia, Turkey, Ukraine, Vietnam and Kosovo. “FTA being adopted” includes
Australia, MERCOSUR, India and Indonesia. “FTA being negotiated” includes Malaysia,
Philippines, Thailand and the UAE.
www.ecb.europa.eu ©

Geopolitical
shocks push up energy prices, worsening the euro area’s terms of trade
Rubric
Citigroup Commodities
Terms-of-Trade index

Geopolitical risk
(index)

(index)

1100
9/11

1000

EA

-5

900

-6

US (RHS)

April tariff
announcement

-10.5
-11 Improvement
T-o-T
-11.5

800
700
600

First gulf war

-7

Iran
war

Iraq war

-12

April tariffs
Russian invasion
of Ukraine

500
400

-8

-12.5
-13

-9

Arab Spring

-13.5 Deterioration

300
200

-14

-10

Start of
Iran war

100
0
01/85

01/93

01/01

01/09

01/17

-10

-11
Jan-25

23/03/26
01/25

Sources: LSEG, Bloomberg and ECB staff calculations.
Notes: Dark blue line denotes the 30-day moving average of the geopolitical risk index,
whereas the light blue line represents the daily series.
Latest observation: 23 March 2026 (reporting lag).

T-o-T

-14.5
-15

Apr-25

Jul-25

Oct-25

Jan-26

Source: Bloomberg.
Latest observation: 25 March 2026.

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Higher
Rubricenergy prices have knock-on effects to other commodity markets
Oil price: Brent spot and futures curve

Fertiliser and aluminium prices

(USD per barrel)

(lhs: USD/t; rhs: USD/mt)
Urea US Gulf futures (lhs)

Spot

Futures (latest)

1000

Futures (before Iran war)

Aluminium price (rhs)
4000 650

3600

600

3500

550

3400

500

3300

450

3200

400

3100

350

3000

120
800

3500

110
100
600

3000

90
80
400

70

2500

60
50
09/25

04/26

11/26

06/27

200
01/22

31/12/2028

Sources: Refinitiv and ECB staff calculations.
Notes: The chart shows the Brent oil spot price together with futures curves for before the Iran
war (cutoff 27 February 2026) and the latest observation.
Latest observation: 25 March 2026.

01/24

2000 300
01/26
25/03/26
01/26

2900
25/03/26
03/26

Sources: Bloomberg and LSEG.
Notes: Urea (Granular) free on board (FOB) US Gulf Futures (left-hand side). London
Metal Exchange (LME) aluminium 99.7% cash price (right-hand scale).
Latest observation: 25 March 2026.

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Rising
gas prices pose particular challenges to the euro area amid low gas storages
Rubric
Gas price: spot and futures curve

Gas storage utilisation rate

(EUR/MWh)

(percent of total capacity)

Spot

Futures (latest)

Futures (before Iran war)

70

100

60

2025

2024

Average (2011 - today)

2026

80

50

60

40

40

30

20
09/25

Range (2011 - today)

20

05/26

01/27

09/27
31/12/2028

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Sources: Refinitiv and ECB staff calculations.
Notes: The chart shows the TTF spot price together with futures curves for before the Iran war
(cutoff 27 February 2026) and the latest observation.
Latest observation: 25 March 2026.

Sources: Gas Infrastructure Europe and ECB staff calculations.
Latest observation: 25 March 2026 (1 day reporting lag).

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Sharp
upward revision in inflation expectations with medium-term risks tilted to upside
Rubric
HICP inflation fixings (ex tobacco)

Balance of risks to euro area inflation

(percentages per annum)
Fixings HICPxT (latest)

(percentage points)

Fixings HICPxT (27 Feb 26)

2-year

Realised HICPxT

5-year

5-year-in-5-year

2024

2025

Upside
risk

100

3.2

80

3.0

60

2.8

40
2.6

20

2.4

0

2.2
2.0

-40

1.8

-60

1.6

-80

1.4
Jan-25

Jul-25

Jan-26

Jul-26

Jan-27

-100
2022

Jul-27

Downside
risk

-20

2023

2026

Sources: Bloomberg, LSEG and ECB calculations.
Notes: As a synthetic market indicator of perceived risks to price stability, the balance of risks is
defined as the difference between the risk-neutral probability assigned to average inflation being
above and below 2% (see Garcia et al. 2024).
Latest observation: 25 March 2026.

Sources: Bloomberg, Eurostat and ECB calculations.
Notes: Monthly inflation paths refer to inflation fixings, tied to HICP ex tobacco.
Latest observation: 25 March 2026.

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ECB’s
expected policy rate path has shifted up and has become much more uncertain
Rubric
Euribor-implied probability densities
six months ahead

Realised and implied ECB deposit facility rate
(percentages)

Realised DFR

Latest

(percentages)
Latest

Pre-Iran war

Pre-Iran war

4.5
4.0

4.5
3.5

4.0
3.5

3.0

3.0
2.5

2.5
2.0

2.0

1.5
1.5

1.0
0.5

1.0

0.0
0.5

-0.5
-1.0
Jan-21 Jan-22 Jan-23 Jan-24 Jan-25 Jan-26 Jan-27 Jan-28 Jan-29

0.0
1.00

Sources: Bloomberg and ECB calculations.
Notes: Pre-Iran refers to 27 February 2026.
Latest observation: 25 March 2026.

11

1.50

2.00

2.50

3.00

3.50

4.00

Sources: Bloomberg and ECB calculations.
Notes: Market-implied expectations are inferred from pricing of meeting dated OIS contracts.
Implied density of 3-month EURIBOR in 6 months' time on selected dates. Pre-Iran war
corresponds to 27 February 2026.
Latest observation: 25 March 2026.
www.ecb.europa.eu ©

Structural
Rubric challenges from demographic ageing and climate change dampen growth
Potential GDP growth in the euro area

Global GDP losses due to climate change:
current policies vs net zero 2050 scenario

(annual percentage changes and percentage point contributions)

(% of annual global GDP)

Labour contribution
Capital contribution
TFP contribution
Potential growth

2.5

Current Policies
Net Zero 2050
0

Projection
2.0

-2

1.5

-4

1.0

-6
-8

0.5

-10

0.0
-12
2023

2025

2030

2035

2040

2045

2050

2034

2032

2030

2028

2026

2024

2022

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

-0.5

Sources: IIASA NGFS Climate Scenarios Database, NiGEM model with REMIND inputs (Phase V
publication).
Notes: The chart shows NGFS long-term scenarios. The euro area is most likely to be hit less severely
than the global average, which is mainly since its national climate action plans are slightly more
ambitious than most of the other countries, thus the additional transition risk weighs less strongly.

Source: European Commission Autumn 2025 Forecast.

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Given
higher spending needs, fiscal sustainability requires higher potential growth
Rubric
Defence spending

Government interest expenditures

(share of GDP)

(percent of GDP)

Germany
Italy
EA (17 NATO Members)

2024

France
Spain

4.0

8

3.5

7

difference 2024-2034

6

3.0

5

2.5

4

2.0

3

1.5

2

1.0

1
0

0.5
0.0
2014

-1
FR IT BE SK FI LV AT ES GR DE LT SI PT HR EE NL MT LU IE CY

2016

2018

2020

2022

2024

2026

2028

Source: NATO.
Notes: 2025-2028 shows the flexibility under an activated national escape clause, which is
1.5% of GDP; if a Member State requests activation, the time profile of the increase of up
to 1.5% of GDP is flexible over the four years. EA aggregate does not include the four
non-NATO euro area Member States AT, CY, IE and MT.
Latest observation: preliminary 2025 data for France, Italy and Spain, 2024 for the rest.

Source: ESCB DSA based on Autumn 2025 European Commission’s forecasts.
Notes: The figures refer to a hypothetical no fiscal policy change scenario, where the structural
primary fiscal balance (i.e. excluding the cyclical impact of macroeconomic developments) remains
constant at 2024 level except for the expected change in ageing cost.

13

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Reducing
Rubric internal trade barriers would help exploit benefits from single market
Trade barriers and benefits from lowering them

Intra-EU and extra-EU trade
(percentage of nominal GDP;
left panel: goods market, right panel: services market)
EU-27

Tariff equivalent rate (lhs)

Extra-EU

55

Potential reduction in tariff equivalent rate (lhs)

17

50

16

45

15

40

14

35

13

30

12

25

11

20
2013

(lhs: percentage points; rhs: percentage change in barriers and
intra-EU trade)

2018

2023

10
2013

100

2018

Trade effect (rhs)

20

90

18

80

16

70

14

60

12

50

10

40

8

30

6

20

4

10

2

0

2023

0
Goods

Source: Eurostat
Latest observation: 2024.

14

Services

Sources: OECD TiVA 2025, Antràs and Chor (2018), ECB Economic Bulletin 8/2025 and ECB calculations.
Notes: The tariff equivalent rates (yellow bars) are based on a gravity estimation and shows the ad-valorem
tariff equivalent of intra-EU trade barriers. The potential reduction in tariff equivalent rates (red bars) reports
the difference in estimated trade costs in the Single Market between the rest of the EU and the Netherlands
(the country displaying the highest integration within the EU). Trade effect (blue bar) represents the
percentage change effect of decreasing the trade costs/barriers by the amount in the red bars.

www.ecb.europa.eu ©

•Diffusion
Rubric and adoption of AI offers opportunities to significantly raise TFP
Range of estimated TFP impact of AI
under different scenarios

AI adoption rates of workers
(% of all workers)
2024

(% increase over 10 years)

2025

5.0%

60

4.5%
50

4.0%
3.5%

40

3.0%
30

2.5%
2.0%

20

1.5%
1.0%

10

0.5%
0
EL

IT

BE

FR

PT

IE

FI

EA

ES

NL

AT

DE

Source: Consumer expectations survey (CES).
Notes: The chart shows the percentage of workers replying with “Yes” to the following
question: “Do you personally use artificial intelligence (including a large language model, such
as ChatGPT or Gemini) in your work?”. Artificial intelligence refers to devices that can perform
tasks that would usually require human intelligence. These can be software (including large
language models), computers, robots or other hardware devices, possibly augmented with
sensors or cameras, etc.

0.0%

Historicalspeed
adoption
speed
Adoption
as other
GPT Observed speed of adoption

Source: ECB calculations on CES data.
Notes: The blue bars indicate the range of estimates across scenarios reflecting different
assumptions about the share of the economy exposed to AI, which may remain constant over time
(at either a low or high level) or increase as AI capabilities improve.
www.ecb.europa.eu ©

Higher
RubricR&D in defence spending could significantly enhance impact on GDP growth
Historical composition of
defence spending (2015-2023)

GDP growth impact of
crowding-in of private R&D

Cumulative public R&D
multipliers

(% of total military spending)

y-axis: percentage deviations from steady state;
x-axis: years)

(y-axis: EUR of GDP increase per EUR of
public R&D invested; x-axis: years)

Procurement
Research and development
Operations and maintenance
Military personnel
Other

Labour contribution
Capital contribution
TFP contribution
GDP growth

0.5

3.0
2.5

0.4

2.0

0.3
Euro area

1.5

0.2

1.0

0.1

0.5

0.0

0.0

-0.1
US

0%

20%

40%

60%

80% 100%

Sources: JANES and ECB staff calculations.
Notes: The euro area figure is based on 18 countries, with no data
available for Cyprus and Malta.

-0.2

-0.5

-0.3

-1.0
-1.5

-0.4
1

2

3

4

5

Source: Eurosystem estimates.

16

6

7

8

9

10

1

2

3

4

5

6

7

8

9 10

Source: Eurosystem estimates.

www.ecb.europa.eu ©

Strengthening
autonomy requires reduction of dependencies in commodities and payment
Rubric
Critical raw materials
subject to export restrictions

Share of energy consumption
from renewables in EU

(% of exports)

(percent)

2022

Role of international card
schemes in card transactions
(percent)

2017

70

45%
32%

60

40%
35%

50

30%

40

25%
30
World average 2022

68%

20%
15%

20

World average 2017

10%
International card schemes

5%

0

0%
2005 2010 2015 2020 2025 2030

Feld spar
Rare earths
Lithium
Magn esium
Graphite
Baryte
Stron tium
Germanium
Galliu m
Indium
Telluriu m
Nickel
Tin
Bo ro n
Hafnium
Tungsten
Silic on
Fluorspar
Antim ony
Titanium
Beryllium
Pho sphorus
Van ad iu m
Mangan ese
Alu minium
Pallad ium
Niobium
Silver
Cop per
Zirconium
Cob alt
Zinc
Chrom ium
Ars enic
Lead
Tantalum
Platin um
Rh odium
Molybdenum
Selen ium
Ru then iu m
Iridium
Osm ium

10

Source: EBRD Transition Report 2023-24.

Source: European Environment Agency.
Notes: The dotted line presents a linear trajectory to the
minimum EU target for renewable sources of 42.5% by 2030.
Latest observation: 2024

17

National card schemes

Source: ECB.
Notes: Share of international card schemes by volume in total
electronically initiated card payments with cards issued in the
euro area and transactions acquired worldwide, i.e. in any noneuro area country.
Latest observation: 2024.
www.ecb.europa.eu ©

Thank you very much for your attention!

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