French growth was lower than expected in the first quarter, at 0% QoQ, mainly hampered by exceptional factors, mostly aeronautics deliveries and public investment. These factors explain why this figure is significantly lower than our nowcast and that of the Banque de France, which estimated that growth had reached 0.3% in Q1, based on production indicators in industry and services. This lead taken by production is reflected in a strongly positive contribution from changes in inventories (+0.8 percentage points), driven mainly by transport equipment.
The central banks of the world’s leading advanced economies met this week, and all decided to leave their policy rates unchanged despite significantly higher inflation prints and outlooks. In the words of Bank of England (BoE) Governor Andrew Bailey, these were “active holds”. They are not fully hawkish yet, but the hawks have made their dissent heard while still in the minority. But they are no longer in a pure passive “wait-and-see” mode. We expect hikes to come through in June, at least for the BoE, BoJ and ECB.
The trade openness of EU countries represents both a strength and a weakness, making active initiatives necessary to enhance economic security. According to the World Bank, in 2024 the EU’s trade openness stood at 92%, compared with 25% for the United States and 37% for China. For Italy, the figure was 63%, among the highest among Member States, with particularly strong exposure to extra-EU demand. The evolution of the international geopolitical and economic context, together with the country’s dependence on the import of energy materials, suggests that careful consideration should be given to the potential vulnerability of Italian imports to possible total or partial disruptions in the external supply of strategically significant products.
Equity indices, Currencies & commodities, and Bond markets.
A series of six charts showing key economic indicators (GDP, inflation, unemployment, current account balance, budget balance, public debt ratio) and comparing the situations of the major advanced economies.
Solid growth in Q1 2026. According to our nowcast, growth is expected to strengthen in the Eurozone (+0.4% q/q, after +0.2% in Q4) and in France (+0.3% q/q, after +0.2% in Q4), driven by a positive momentum despite the energy shock that began in March. In the United States, the rebound suggested by the GDP Now (+0.3% q/q, after +0.1% in Q4) is underestimated. This is because this indicator does not take into account the favourable post-shutdown effect (which our forecast of 0.9% q/q, non-annualised, does). In the other major Eurozone economies, growth is expected to have remained broadly stable: in Germany and Italy, the pace is expected to remain close to Q4 2025 levels (+0.3% q/q), thanks to public demand (investment and consumption)
Despite the war and energy shocks unfolding in parallel to the Meetings, finance officials, central bankers and other delegates took the situation with a poise that contrasted with the sense of shock that followed Liberation Day. Unable to predict with any degree of confidence how the war would evolve, and hence how large the economic damage would be, delegates focused more than usual on what lies beyond the near-term outlook: regime changes in geopolitics, economics and markets; how to explain and preserve recent resilience; and the multiple ongoing re-wirings of the fabric of the global economy and financial markets. Here are some personal key takeaways.
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Latin America is considerably less exposed than other emerging regions to the repercussions of the war in the Middle East. This is mainly due to its very low risk of hydrocarbon supply disruptions: the vast majority of imported hydrocarbons come from the United States and other countries in the region, with only a negligible portion coming from the Middle East. Furthermore, several countries are net exporters (Argentina, Brazil, Colombia and Ecuador).
In Hungary, Péter Magyar’s pro-European centre-right party won a landslide victory in the general election held on 12 April. According to the latest official estimates, Tisza is reported to have secured a supermajority, which would give it significant room for manoeuvre to drive through institutional reforms. The new government will nevertheless face several challenges, including the release of European funds essential for revitalising the economy, and the consolidation of public finances. Meanwhile, the partnership with China in the field of electric mobility remains a priority.
This week, Washington DC will host two gatherings that should be important in their own right, and yet are unlikely to be: one is the Spring Meetings of the International Monetary Fund (IMF) and World Bank (WB), which brings into town thousands of top finance and central banking officials as well as private sector delegates from the financial sector and civil society; the other is the peace negotiations between Israel and Lebanon. The former is traditionally an opportunity to take stock and send a combination of reassuring messages to markets and stern admonitions to policymakers. The latter could have been history-making just for taking place. Yet both are certain to be overshadowed by developments in the Persian Gulf and US-Iran talks
Will a different situation lead to different outcomes? In other words, will the combination of weaker demand and more moderate supply constraints in 2026, as compared to 2022, help to limit the rise in inflation? Having illustrated the impact of the energy shock caused by the war in the Middle East on six key variables in the Eurozone in our previous Chart of the Week, we now move on to a new comparison between these two dates, this time focusing on the relative levels of supply and demand issues. In the Eurozone, weaker demand has resulted in a more pronounced decline in inflation, unlike in the United States, where both demand and inflation have remained more sustained
The war in the Middle East has caused significant disruptions in the market for refined petroleum products, affecting not only Asia but also Europe. For the time being, the situation in Europe remains under control, largely thanks to stock levels that provide visibility for around one month. Nevertheless, Europe’s dual reliance on suppliers in the Gulf and Asia calls for caution. Supply status in the European market will be influenced by geopolitical developments in the Gulf and whether Asian producers choose to prioritise supplying their domestic markets.
Two measures of inflation (including and excluding energy) and six survey data points to track the impact of the latest energy shock—caused by the war in the Middle East—on economic activity and prices in the euro area. This Focus also highlights how closely the current situation mirrors that of 2022, when the conflict in Ukraine began.
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
