Business sentiment remains solid for the time being, despite the energy shock. Above all, companies are reporting, above all, a rise in input costs, which is expected to lead to higher prices for goods sold in the coming months. Output remains buoyant, in both industry and services. However, household confidence is deteriorating significantly, driven by sharply rising inflation expectations.
Surveys suggest a healthy level of activity in Q1 but are already showing signs of deterioration from Q2 onwards. Business sentiment indicators were fairly positive at the start of 2026. However, they now point to a downturn, with a resurgence of supply constraints and an expected deterioration in demand (from both businesses and households). The manufacturing output index is contracting for the first time in six months.?
Business sentiment surveys point to a healthy economy, despite the energy shock. In March, business sentiment (ISM PMI) remained in expansion territory in both the manufacturing (which hit a four-year high) and non-manufacturing sectors, but supplier delivery times extended and, above all, input-price growth accelerated (and stood at a high not seen since 2022). By contrast, consumer sentiment (Michigan) has dipped sharply. Expectations deteriorated, particularly around 1-year inflation.
The economy was in good health before the energy shock. Business sentiment (PMI) reached a high not seen since 2013 in Q1 2026, but March data pointed to a slowdown. New household concerns were evident that same month in the decline in consumer confidence (following a post-COVID high in February), which was widespread across its sub-components (overall livelihood, willingness to buy durable goods). This brought an end to an upward trend spanning several months.
Economic growth accelerated in Q1, driven by the export-oriented manufacturing sector. The improvement in the business climate within the industry had signalled a strengthening of activity. Industrial production growth reached 6.1% year-on-year in Q1, vs. 5.0% in Q4 2025, supported by a sharp rise in exports – particularly of electronic goods. This momentum contributed to a slight recovery in investment in Q1. Growth in services, meanwhile, slowed from 5.6% y/y in Q4 2025 to 5.0% in Q1 2026. The rebound in retail sales observed in January–February did not last, due in particular to the waning impact of government subsidy schemes. The consumer confidence index has been recovering slowly for several months, but remains very low
We have selected a set of indicators to track the impact of this new energy shock, caused by the war in the Middle East, on activity and prices in the Eurozone, the United States, oil and gas markets and emerging countries, and to see how much the current situation resembles the situation in 2022 at the outbreak of the conflict in Ukraine.This dashboard featuring graphs and comments will be updated on a monthly basis for as long as necessary.
The assessment of the available data to date is relatively positive, as the immediate reaction of confidence surveys and inflation was limited and the overall developments were less unfavourable in March 2026 than in March 2022. This is good news, but it does not prejudge what will happen next at all. It is likely that the deterioration observed will continue: the question is by how much.
The Iran war delivered a quick, though relatively contained, negative impact to US activity data and surveys.By March, CPI inflation recorded its largest monthly increase since 2022 and reached +3.3% y/y (+0.9 pp) –almost entirely on the back of gasoline prices, with the non-energy index remaining virtually stable.
In March 2026, the inflationary impact of the surge in oil and gas prices remained moderate, both in absolute terms with an average inflation rate for the main emerging countries of 4.3% compared to 3.9% in February, and relative to 2022. The absence of contagion to agricultural and food prices is the main explanation. Manufacturers' opinion on input prices is, moreover, less degraded than in 2022. However, a catch-up should occur with the expected release of the rise in fertilizer and petroleum-derived input prices to all prices.
The energy shock implied by the war in the Middle East has, for now, induced stronger reaction in oil and European gas spot prices than those observed following Russia's invasion of Ukraine.
In January, inflation fell in the United States, the Eurozone, the United Kingdom and Japan. The United Kingdom still has the highest inflation rate, ahead of the United States. The Eurozone followed, with Japan recording the lowest inflation rate. Core and wage trends are moderating overall, with this trend reinforced by the anchoring of inflation expectations.
Business climate, households confidence, labour market, inflation in Q4 2025: our quarterly Pulse of the economic conjoncture
In the major advanced economies, public deficits remain high, particularly in the United States, the United Kingdom and France. Interest expenditures are expected to rise in countries where they are currently low – Germany, Japan and France – and stabilise at a high level in countries where they are currently higher – Spain and Italy – without, however, increasing. By 2030, according to our forecasts, the dynamics of the public debt-to-GDP ratio would reflect differences in public deficit scenarios.
The US primary deficit is expected to narrow in 2025 and stabilise at around 1.0–1.5% of GDP in the coming years thanks to higher customs revenues.
Germany's primary deficit is expected to widen over the next two years as a result of the new fiscal strategy, before gradually narrowing between now and 2030.
Despite consolidation, which is set to continue from 2026 until the end of the decade, the primary deficit will remain worse than the stabilising balance. Public debt will therefore increase.
Until 2027, nominal growth (3.2% on average) is expected to remain higher than the apparent interest rate (3.1%) due to an acceleration in real growth (0.9%).
Spain is expected to generate primary surpluses from 2026 onwards.
The primary budget balance has gradually recovered post-COVID, mainly supported by improved growth, but remains high compared to the rest of Europe.
Japan's primary deficit is expected to narrow in 2025 but is likely to increase again to around 2% of GDP in the coming years due to upward pressure on public spending.
In September, inflation rebounded slightly in the United States, the Eurozone and Japan, while remaining stable in the United Kingdom. In the United States, the inflationary impact of tariffs has so far been contained (see chart of the month). In the other countries, there are positive signs, as inflation expectations are stable at around 2% in the Eurozone, wage growth is moderating in the UK and producer prices are falling in Japan.
In May, the United States stood out for an increase, albeit very slight, in its inflation (from a higher level), while it slowed sharply in the eurozone and fell slightly in the United Kingdom and Japan. Among the unfavourable developments to watch out for, energy commodity prices (oil and gas) have started to rise again since April, as has the break-even inflation rate, which could support inflation over the coming months. Conversely, two positive dynamics are emerging: wage growth is moderating, and price pressures on the supply side are easing, with the notable exception of the United States.
A slight rise in inflation was seen on both sides of the Atlantic this autumn. However, the resilience of services prices and the geopolitical risks anticipated for 2025 do not, at this stage, threaten a landing scenario for inflation. In our view, this should be achieved more quickly in the eurozone than in the United States and the United Kingdom.
The past week (16-22 September) was packed with monetary policy meetings and inflation reports. While the US Federal Reserve’s first key rate cut of 50 basis points was larger than we had expected, the status quo by the BoE and BoJ was in line with our expectations. With inflation running below 3%, real interest rates on both sides of the Atlantic remain broadly in restrictive territory. Expected moderation in inflation in services should prompt central banks in Europe and the US to continue monetary easing in the coming quarters. Wage growth in the private sector picked up slightly in the US, while slowing in Europe. The downward trend is expected to continue, with a less dynamic labour market
In the United States, consumer price inflation is slowing, in line with the cooling of the labour market. After three months of more restrained growth, the CPI index fell in June, month-on-month, for the first time in two years. The core index rose very moderately (+0.1% m/m, the smallest increase since May 2020). Other important signs of disinflation: alternative measures continue to fall, and in particular the trimmed mean PCE index published by the Federal Reserve in Dallas, which is now well anchored below 3%. The rebound in producer prices, which is still limited at this stage, is nonetheless worth watching and could limit the fall in consumer price inflation. Year-on-year, producer prices rose back above 2% in the second quarter (2.7% y/y in June).
Chart books on economic developments in major economies
