The DAX index in Germany dropped 1.6%, the CAC 40 in France declined 1.5% and the FTSE 100 in the U.K. also shed 1.5%

After rising early in the session, European stocks closed lower on Thursday, with confidence remaining fragile as the ongoing war in the Middle East showed no sign of ending.

The DAX index in Germany dropped 1.6%, the CAC 40 in France declined 1.5% and the FTSE 100 in the U.K. also shed 1.5%.

International Monetary Fund Managing Director Kristalina Georgieva said the conflict was testing “global economic resilience”.

This conflict, if proven to be prolonged, has obvious potential to affect global energy prices, market sentiments, growth and inflation. And it would place new demands on the shoulders of policy-makers everywhere, she said earlier Thursday.

Also hitting sentiment has been the worry that the soaring energy prices will result in rising inflation in Europe, a region that is very reliant on imported energy, putting pressure on the European Central Bank to hike interest rates.

A long war in Iran would push up inflation in the eurozone and hurt growth but it is still too early to draw any conclusion about the conflict, European Central Bank policymaker Joachim Nagel said on Thursday.

If the conflict comes to a swift end, the consequences for inflation would be short-term and limited overall, he said in a speech.

By contrast, if energy prices were to remain elevated for an extended period of time, this would tend to lead to higher inflation and weaker economic activity in the euro area, he said.

That said, Bank of France Governor and ECB policy maker Francois Villeroy de Galhau said on Thursday that he saw no reason for the central bank to raise its interest rates as it stands.

Retail sales in the eurozone increased 2.0% on an annual basis in February, ahead of the expected 1.7%, later in the session, with the monthly figure declining 0.1%.