Asset prices have been moving in unusual ways since the onset of the Gulf War (no safe havens, limited dollar rally and de-risking). Do financial markets know something we don’t, has something fundamentally changed in the way asset prices reflect economic expectations, or are they simply malfunctioning and about to swing wildly as things normalise? Unfortunately, it is impossible to know for sure, and what’s more, these hypotheses are not mutually exclusive. So far, markets appear to expect an inflation spike, met with a firm central response, with limited damage to growth, and a relatively swift return of inflation to target range. That may turn out to be correct. But far worse outcomes are also very plausible
The conflict in the Gulf has escalated in recent days, with an increase in strikes targeting oil and gas facilities (on both sides). The impact on energy prices has therefore intensified. A relatively rapid de-escalation of the conflict is unlikely, whilst there is a growing prospect of the conflict worsening along with its macroeconomic effects (higher inflation, lower growth). Central banks have taken note of this this week, but are waiting for greater clarity on how events will unfold before deciding how to respond. The markets, too, are taking a more cautious stance and anticipate that central bank will adopt more restrictive policies than previously expected for over the rest of the year. So do we.
The conflict in Iran is already having a significant impact on energy prices, particularly oil and gas. Inflation should therefore rise in March. Beyond that, the outlook will depend on the evolution of the conflict, but the situation remains highly uncertain.Three types of scenarios are plausible:1) A return to the status quo ante on the hydrocarbon market after a few weeks;2) A prolonged period of political uncertainty in Iran leading to a relatively modest, but sustained, rise in oil and gas prices;3) Acute and sustained tensions over oil and gas supplies. The latter two scenarios would constitute a stagflationary shock, i.e. one that slows growth and increases inflation.Fortunately, growth was generally robust on the eve of the shock
The latest economic news.
Between rising interest rates, an ageing population and massive rearmament needs, the budgetary equation for advanced economies is becoming increasingly complex. Why is debt continuing to grow in the United States and France, while it is falling in Spain and Italy? How does Germany intend to finance its infrastructure and defence without jeopardising its budgetary stability?In this new episode of En Eco dans le texte, Stéphane Colliac, Marianne Mueller and Benjamin Puiseux explain the inner workings of public debt. They also explore reasons for optimism: from the impact of artificial intelligence on productivity to reforms in the employment rate of senior citizens
After two quarters of contraction, German industrial output rose by +0.9 % q/q in Q4, despite a December decline (-1.9 % m/m). That decline, driven mainly by the automotive sector, hides ongoing improvements in most other parts of the industry. Those gains are expected to deepen in coming months thanks to a sharp rebound in new orders for capital goods. We see this as signaling the start of a fresh industrial cycle that is increasingly powered by domestic demand. At the same time, a recovery in exports is starting to take shape, with a solid December figure and a pickup in new foreign orders - though the rebound is not as strong as on the home front.
Business climate, households confidence, labour market, inflation in Q4 2025: our quarterly Pulse of the economic conjoncture
The issue of European sovereignty has been on everyone's mind recently. Among its many dimensions, sovereignty in retail digital payments is often cited as an urgent gap to be filled. In fact, two-thirds of digital payments in the Eurozone rely on non-European providers, mainly American. However, this situation is not inevitable, and 2026 could well be the year when a European alternative takes off and reaches critical mass.
2026 could prove to be just as turbulent and resilient as 2025 in economic terms. The use of the term “turbulent” is justified considering the geopolitical developments and tensions that have already marked the beginning of this year, and which constitute an additional source of uncertainty (the immediate short-term economic impact is expected to be minimal, with low oil prices offsetting the negative effect of increased uncertainty). The second term reflects a crucial aspect of our baseline scenario. However, it remains to be seen whether the global economy, and advanced economies in particular (the focus of this editorial), will manage to navigate the challenges ahead as they did in 2025
Contributions of the various components of demand to quarterly growth (quarter-on-quarter, non-annualized).
Economic and financial forecasts for major economies as of December 15, 2025.
Twice a year, BNP Paribas Economic Research invites you to take stock of the global economic situation at a dedicated conference. For the December 2025 edition, the team has chosen to review the past year and present its outlook for 2026 with Jean Lemierre, Chairman of the Board of Directors of BNP Paribas.
Notwithstanding the new US economic policy, which is highly interventionist in terms of trade policy and conflictual, with the longest shutdown in history, the watchword for 2025 was the resilience of growth performance. 2026 should start under the same auspices, with the Trump administration pursuing its agenda, the key elements of which are the renewal of the Fed governor and the risk of the Fed losing its independence. In Europe, the challenges are significant, with a substantial political agenda, including the implementation of Rearm EU, but not limited to that. In a still uncertain environment, we nevertheless believe that growth should return, despite an increasing competition from China
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.
There has been remarkably limited interest in Europe at recent international economic and financial gatherings, as if “Europe’s moment”, as ECB President Lagarde dubbed it back in the Spring, has already passed in the eyes of many. Meanwhile, European media outlets have been indulging in negative narratives about political risks, persistent industrial doldrums, and inability to implement reforms that might preserve Europe’s place in a world increasingly dominated by the US and China. And yet, under the radar, a lot of good things have been happening.
At a time when central banks are navigating between persistent inflation, economic slowdown, and unprecedented structural challenges, their room for maneuver has never been so closely scrutinized. Should they lower rates to support growth, maintain them to anchor inflation, or raise them in the face of unexpected shocks? Between balancing acts, threats to their independence, and regional divergences, the choices made by central bankers will shape the economy of tomorrow.
The IFO business climate index fell in September to 87.7 from 88.9 in August (-1.2 points month-on-month, a monthly change close to the historical average monthly change of 1.1 points in absolute terms). This deterioration, after eight consecutive months of growth (84.8 in December 2024), particularly affected services. The situation in industry remained stable and more favourable than at the end of 2024, with a gain of around ten points for both current activity and the outlook.
Presidents Trump and Von der Leyen announced yesterday from Scotland that a trade agreement had been reached. Is it a good deal? Political commentators and many editorialists mostly say no. The stock market reaction says yes. Our take: the deal is at the better end of the spectrum of what could realistically be achieved. Importantly, it removes the risk of a trade war escalation in the world’s largest trade relationship, and creates a more predictable environment for firms on both sides of the Atlantic to operate in.
