The bank, founded to help former Soviet bloc nations adopt free-market economies, said European gas prices exceeded those in the US by a factor of five amid a widening gap.

“Electricity prices in Europe are also much higher than in the United States,” the London-based EBRD said in its latest outlook report, which also focused on countries in the Middle East and Africa where it invests.

The bank predicted that gross domestic product would slow to 3.1% across its regions of operation this year from 3.4% in 2025, with Europe more dependent on hydrocarbon imports than the US.

This was a downgrade of 0.5 percentage points from an EBRD forecast in February, before the US-Iran conflict began at the end of that month.

“The conflict in the Middle East has delivered a new shock to regions already navigating weakness in manufacturing industries and fragile fiscal positions,” the bank’s chief economist Beata Javorcik said in a statement.

“Higher energy costs are squeezing competitiveness, reigniting inflation and tightening fiscal space at a time when many economies can least afford it,” she added.

The EBRD’s biggest growth downgrades were in its Southern and eastern Mediterranean zone, which includes Egypt, Iraq, Jordan and Lebanon.

This follows Israeli troops making their deepest incursion into Lebanon in two decades as part of the Middle East war.

Lebanon’s economy is expected to contract by 2% this year, according to the EBRD, having forecast in February that it would expand by 4%.

The institution is predicting a rebound for Lebanese growth next year, “provided peace is achieved”.

The EBRD in April announced it was unlocking €5 billion (US$5.8 billion) to help shore up economies hit by the Middle East war.