European Central Bank official Fabio Panetta warns the US-Iran conflict has already inflicted lasting damage on the global economy, with disruptions to energy supply chains forcing some Gulf nations to suspend hydrocarbon production. The conflict launched Feb. 28 by the US and Israel has created immediate and potentially lasting effects on international markets, according to the Bank of Italy head.

Even if hostilities end soon, Panetta projects a slow return to normal production, with economic fallout extending beyond the immediate conflict. The ECB's recent macroeconomic projections included two adverse scenarios that now seem more likely, with the more severe case suggesting damage could delay recovery until 2027. Other European central bankers agree the adverse scenario may become the new baseline.

The conflict has stoked anxiety about rising energy costs driving inflation and hampering economic expansion. Irish and Slovenian central bankers have joined Panetta in warning the euro-area economy faces a worse outcome than previously anticipated. The ECB now confronts a deteriorating economic picture where energy supply disruptions continue to weigh on growth prospects.