Will the same causes produce the same effects? In other words, will the outbreak of war in Iran and the associated surge in oil prices (+44% to date) and gas prices (+64%) lead to an inflationary shock comparable to that of 2022? Will their negative effects on growth be the same as those of the war in Ukraine and the ensuing energy shock (a rise in oil prices of around 30% between 23 February and its peak in early June 2022, and a rise in gas prices of around 210% between 23 February and the peak in late August 2022)? The risk cannot be ruled out. Indeed, there are similarities and numerous uncertainties.
Inflation in both the Eurozone and France is expected to return to levels not seen since the summer of 2024. In March, we forecast 2.6% y/y in the Eurozone (compared with 1.9% in February). In France, where inflation is starting from a much lower base (1.1% in February), it is expected to reach 1.7% y/y in March, rising to 2.1% in May. This rebound in inflation is attributable to the sharp increase in energy prices, which has not yet been passed on to core prices. Business surveys point to a rebound in input prices. However, they do not currently suggest an increase in selling prices in the second quarter, either in France or in the Eurozone. Nevertheless, a rebound in core inflation is expected from the second half of the year
According to INSEE, the French public deficit in 2025 improved by 0.7pp at 5.1% of GDP (the government targeted 5.4%). This improvement is due to the rebound in the rate of compulsory levies (CL). The public debt ratio is also below projections (115.6% versus 116.2%), although its increase in 2025 was as expected (+3pp). This evolution, along with the repercussions of the shock in Iran, particularly regarding interest rates, suggest to stick with fiscal consolidation efforts in 2026. The deficit is expected to benefit from a better starting point, the anticipated increase in the CL included in the 2026 budget, and the likely favourable impact on revenue from higher nominal growth in 2026
During her hearing on 18 March 2026 before the Committee on Economic and Monetary Affairs of the European Parliament, Claudia Buch (Chair of the Supervisory Board of the European Central Bank) highlighted the absence of decline in the quality of bank assets and the stability of non-performing loan ratios. These ratios are a good indirect indicator of the financial health of borrowing corporations in the European Union (EU), particularly in the manufacturing sector. When viewed from this perspective, the proportion of firms in this sector facing severe financial difficulties appears to be lower at the start of 2026 than at the start of 2022. This suggests, by extension, that these firms are in better financial health and have a greater ability to absorb shocks
The week of 16–20 March was particularly busy on the monetary policy front. No fewer than 21 central banks met against the backdrop of a common exogenous factor: the conflict in the Middle East that broke out in late February 2026. Prior to the onset of the conflict, 12 to 15 of these banks were either in an easing cycle or preparing to implement rate cuts. Ultimately, regarding policy rates, sixteen banks maintained the status quo, two opted for an increase and three for a cut
For several years, Central Europe has been facing a marked demographic decline. Its magnitude varies from one country to another. The total population decline from 2004 to 2025 ranges from -0.3% in Slovakia to -17.2% in Bulgaria. The Czech Republic is the only country in the region to have seen a population increase over the same period. The working-age population (ages 15–64) is also declining. However, the situation is less unfavourable in Hungary, Poland, the Czech Republic and Slovakia, while Romania and Bulgaria are experiencing a more significant decline due to migration patterns. Net migration flows were negative for Bulgaria until 2019 and for Romania until 2021. However, this trend has reversed in recent years
As in 2022, the energy shock will affect emerging and developing economies. Today, as in the past, this shock is a negative-sum game between importing and exporting countries. Furthermore, although this is basically a supply shock, central banks in emerging economies may tighten their policies if they need to counter downward pressure on exchange rates, in order to prevent inflation from rising too sharply. However, compared to 2022, there are mitigating factors: 1/ the absence of a shock to agricultural commodity prices so far; 2/ AI, which is an external growth driver for Asian countries in particular; and 3/ the Fed is expected to adopt a more accommodative stance than in 2022 in response to the anticipated rise in inflation
Market opportunities in China are shrinking dramatically due to the country's shift towards higher-end products and its import substitution policy. 2025 marked an unprecedented turning point in this regard: European exports to China fell by 14% in nominal terms and by 10.2% in volume, as the country's share of total EU exports (7.5%) reached its lowest level in nearly fifteen years.
Following the announcement on 4 March 2025 of a joint plan to invest EUR 800 billion in defence within the European Union (EU) by 2030, Member States have been gearing up for action. One year on, the initial assessment is fairly positive. Promises are being kept and, according to our estimates, EU countries spent nearly EUR 400 billion in 2025, slightly more than expected. Germany, the countries of Northern Europe and those that spent the least (including Spain) have agreed to a significant increase in spending. They are therefore aligning with the countries of Central and Eastern Europe that had already implemented this effort (in particular Poland and the Baltic states). Investment represents a growing share of expenditure and R&D is increasing rapidly
With the rise of artificial intelligence (AI), emerging countries with strategic resources—such as critical metals and semiconductor production capacities—are becoming key players. Countries that are well positioned within AI supply chains benefit from both an economic growth engine and an asset to leverage in their international relations. Industrialised countries in Asia, which account for over 85% of the global export of electronic chips, are best placed to capitalise on the increasing demand for AI. However, this advantage comes with greater exposure to the risk of a technology market correction
Key aspects of European policy, the low carbon transition and energy sovereignty programmes converge on many issues. Rising geopolitical tensions, the European energy crisis of 2022 and heightened international trade tensions have contributed to this convergence. At first glance, it seems obvious: Europe, which is structurally dependent on fossil fuel imports, has an interest in accelerating the decarbonisation of its energy mix in order to reduce its hydrocarbon imports. Nevertheless, the progress of the transition-sovereignty pairing remains a path fraught with obstacles.
When Donald Trump ran and won in 2024 on a campaign to “make America Great Again” by building a tariff wall around the US, very few voices rose to defend free trade, outside of international organisations whose creed it is to defend it. After “Liberation Day”, economic forecasters braced themselves for a global trade war. But nothing of the sort happened. Instead, 2025 ended up being an all-time record year for trade liberalisation measures. 2026 is not even two-month-old and has already seen several giga-trade deals signed, two of which by India, one of the countries with the highest tariffs in the world, and there are more signs that the tide is turning
Ageing populations, rising long-term interest rates and increased defence spending are adding to the difficulties for public finances across the OECD. While fiscal consolidation – which can be measured by an improvement of the primary balance by at least 3% of GDP in 4 years – is essential for several member states, this is easier said than done. What can we learn from analysing 20 years of European public finance? Historical examples from EU countries show that expenditure-led consolidation can be an effective approach and tends to support stronger growth after it is completed.
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.
President Donald Trump has picked former governor Kevin Warsh to replace Jerome Powell as Fed Chair from mid-May. This decision has been perceived as reassuring by the financial markets. Nevertheless, his term could prove to harbour some surprises.
Kevin Warsh is set to succeed Jerome Powell as Federal Reserve Chair in May 2026, pending Senate confirmation. President Donald Trump has picked a figure whose public and private track record is likely to reassure the financial markets. While Warsh has advocated lower rates and a reduction in the central bank's balance sheet, he will probably be constrained in his plans. Therefore, we do not expect any material shift in monetary policy in the short term.
On 2 February, President Trump announced the approval of a trade agreement with India, reducing "reciprocal" tariffs on Indian imports from 25% to 18% and eliminating the 25% "penalty" imposed on oil purchases from Russia. As a result, Indian goods will face lower tariffs than those from Southeast Asian countries (excluding Singapore), especially Vietnam and Thailand.While India has signed several trade agreements since last year (including a deal with the EU in January), these arrangements will mean it is no longer penalised compared to its Asian neighbours, both on the U.S. and European markets. However, the short- to medium-term impact on its growth will remain modest
Europe is getting better and better. It has not been spared shocks, notably the war in Ukraine – its impact on energy prices is largely responsible for German stagnation – and political uncertainty in France, which affected French GDP growth in 2025. But Europe is overcoming these difficulties. GDP Growth in the Eurozone proved robust, at 1.5%, and 2026 should be a positive year, even more than in 2025. Industry has emerged from recession, buoyed by defence, aeronautics and AI, while households are showing purchasing intentions not seen since February 2022. All these factors will help Europe to continue building its strategic autonomy. The context is favourable and Europe is becoming increasingly credible in the eyes of investors.
The FOMC decided to keep interest rates steady at 3.5% – 3.75% at its 27–28 January meeting, following three consecutive rate cuts at the end of 2025. Solid economic growth and easing concerns about employment prompted this decision, and we now expect the Fed Funds target range to remain stable throughout 2026, with no interference from the question of Chair Jerome Powell's replacement. As such, the Fed would join the ECB in maintaining the status quo. The Bank of Japan and the Bank of England would continue to be exceptions: the former by raising rates and the latter by continuing its gradual easing.
According to estimates from the Institute for International Finance, net resident capital outflows from the Gulf reached USD 271 billion in 2025, while net non-resident capital inflows amounted to USD 228 billion. Since their 2022 peak, the oil prices and export revenues of the Gulf Cooperation Council (GCC) have been declining. However, the GCC has never before invested abroad as much, despite the drop in its current-account surplus. The surplus fell from 15.7% of GDP in 2022 to 8% in 2023, 5.9% in 2024 and 3.8% in 2025. At the same time, net resident capital outflows from the region rose by 10% (2023–2025).
March 4 will mark the first anniversary of Germany's announcement of its plans for massive investments in defense and infrastructure. The increase in public spending in Germany has already contributed to end the two-year recession (2023-2024) by 2025 – mainly through defense investments, according to our estimates. Infrastructure investments, on the other hand, are currently below the planned amounts. 2026, however, is expected to see a clear acceleration of these programmes, which should bolster a strong pickup in growth and restore Germany’s role as a driving force in the euro area.
In 2025, emerging economies successfully navigated various shocks, including US protectionism, conflicts, and geopolitical tensions, largely due to Chinese exports, monetary easing, and ongoing disinflation against a backdrop of falling oil prices. Overall, financing conditions remained favorable, at least during the first half of the year, with most currencies appreciating against the dollar. In addition, macroeconomic imbalances, particularly external ones, were kept in check. For 2026, a slowdown in growth is the most likely scenario, but stabilization or even consolidation cannot be ruled out. Asia is expected to remain the most dynamic region.
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
On 1st January 2026, Bulgaria became the 21st member of the Eurozone, nineteen years after joining the European Union. Since June 2025, Bulgaria has satisfied the EU's convergence criteria, which include price stability, sustainability of public debt, exchange rate stability and long-term interest rate stability. The European Parliament granted its approval in July 2025, and shortly thereafter, the rating agencies Fitch and S&P upgraded Bulgaria's sovereign rating from BBB to BBB+.
