In the European Union (EU), the post-Covid period was marked by a significant slowdown in productivity, which contrasts with the dynamic trend observed in the United States. However, there are reasons to put Europe's decline into perspective. Over a twenty-year period, real GDP per hour worked has grown more in the EU-27 than in Japan or the United Kingdom. The lag behind the United States is not continuous, but is linked to periods of crisis during which the US federal government intervened on a massive scale to support private-sector companies. The result is a public finance situation which appears much more favourable in Europe, allowing it to address a challenging future.
The energy shock triggered by the war in Iran is reviving inflation, but to a lesser extent than in 2022. May data supports this view. However, the situation still needs to be monitored closely. The U.S.-Iran Memorandum of Understanding provides some relief, yet many uncertainties remain. A return to normal conditions on the oil markets will take time, and the current easing of oil prices must prove durable. Inflation—driven by the lagged effects of tensions on oil, commodities and value chains—is expected to stay elevated for several more months. This will justify a more restrictive stance from central banks.
The assessment of the available data for May is rather positive. Granted, inflation keeps rising, but the contribution of the "energy" component remains dominant. Confidence enjoys a respite: business confidence in services and consumer confidence are sources of good news.
Business sentiment, which was on an upward trajectory before the shock, stayed resilient but signaled a faster input-price growth and longer delivery times, both directly linked to Middle East turmoil and coming on top of the issue of tariffs. Meanwhile, the outlook of households, which were already low on optimism has further deteriorated.
In May 2026, the average CPI inflation rate for the main emerging economies was broadly stable at 4.7% y/y after 4.8% in April. The shock is still contained compared to 2022 due to limited spillover to agricultural and food prices. Manufacturers’ opinion on the trend in input & output prices has stopped deteriorating but remains higher than in 2022.
Until the agreement extending the ceasefire (second half of June), European oil and gas prices had reacted more strongly to the energy shock caused by the war in the Middle East than they had to the shock that followed Russia’s invasion of Ukraine. This is no longer the case now that the prospects for a resumption of traffic through the strait of Hormuz are becoming more tangible.
The global race for artificial intelligence and the electrification of economies is leading to an increase in demand for metals. A recent study by S&P Global indicates that global electricity consumption is projected to grow by nearly 50% by 2040, fuelling a sustained rise in demand for copper, lithium, nickel, and other critical minerals. According to the International Energy Agency, demand for copper could rise by 30 to 40% by 2040, while demand for lithium could increase four- to sixfold, depending on the pace of adoption of low-carbon technologies.
The memorandum of understanding reached between the United States and Iran certainly provides a degree of relief, but it remains shrouded in too much uncertainty to fundamentally change the situation—at least in the short term. The recent fall in oil prices is good news, but it needs to be maintained over the long term, while the reopening of the Strait of Hormuz faces numerous constraints. A return to normal will take time. This headwind to growth is diminishing, which reinforces our resilience scenario. Inflation is likely to remain elevated for some time yet due to the lagged effects of tensions on oil and other commodity prices
23 June will mark the tenth anniversary of the Brexit referendum, which led to the UK’s official exit from the European Union on 31 January 2020 (followed by a transition period). Since then, the country has indeed regained control over certain policy domains, such as trade, migration and regulatory frameworks. However, both the anticipation of Brexit and its actual implementation in 2021 have been linked to a decline in the country’s performance across several key indicators. Against a backdrop of escalating geopolitical tensions and mounting shared challenges, the UK is now seeking to re-establish practical collaboration with its main economic partner: the European Union.
The United States and Iran have reached an agreement to extend the ceasefire by 60 days and gradually reopen the Strait of Hormuz to traffic. The oil markets reacted swiftly: Brent prices have fallen by around 7% since the announcement and by 32% from a peak reached on 29 April. However, they remain 27% above the average for January. Despite this optimism, a comeback to normality for the oil market is likely to take several weeks.
Out of the spotlight, Europe is quietly preparing to emerge from its post-pandemic underwater years like a nymph turns into a stunning dragonfly. The turmoil of the last year and a half has brought about “Europe’s moment” in more ways than is being recognized. Europe isn’t just emerging as the alternative safe haven of choice. It can count on five powerful boosters: rebounding industrial strength, established services dominance, tech acceleration, a governance sea-change, and favorable geopolitical winds.
The blockade of the Strait of Hormuz over the past two and a half months has significantly reduced the amount of oil available globally. The use of regional bypass, and the release of commercial stocks and strategic reserves are only partial and temporary solutions. Without the restoration of oil flows through the strait, the growing shortfall in petroleum products will accelerate the rise in oil prices and destruction in global oil demand.
CPI inflation recorded its largest monthly increase since 2022 in March, before reaching 3.8% y/y in April (+1.4pp in two months and a highest since 2023) – almost entirely on the back of gasoline prices, with the non-energy index edging up only moderately.
China’s rise is undermining major sectors of European industry. However, as the German economy illustrates most clearly, Europe is shifting, driven by investment cycles in defence, electrification and artificial intelligence. It is redirecting its exports and managing to maintain strong positions, particularly in high value-added services, where exports to China are trending upwards. Yet this repositioning remains fragile and could be hampered by the economic costs of the conflict in the Middle East. To consolidate its positions, Europe must accelerate the unification of its internal market and do more to strengthen its industrial policy. This is the aim of the ‘One Europe, One Market’ agenda.
The 15th Five-Year Plan, which outlines the roadmap for the Chinese economy from 2026 to 2030, does not signify a major shift in direction but rather continues on the path of the previous plan. It confirms, or rather reinforces, China’s development strategy based on asserting its export, industrial and technological power. Rather than focusing on rebalancing the growth model and boosting domestic consumption, Beijing is prioritising industry and innovation, seeking to increase its dominance in critical sectors and guarantee its ‘national security’
Welcome to this new episode of MacroWaves, the podcast from BNP Paribas’s Economic Research department. In this episode, we’re joined by Pascal Devaux to discuss a crucial issue for Europe: its energy dependence. Reliance on imports highlights the European Union’s lack of energy sovereignty. This applies to both the primary energy mix and the infrastructure needed for its low-carbon transition.The EU is making progress, however, albeit very slowly.To what extent is the European Union dependent? What approaches could enable it to reverse the trend, or at least make progress? That is what we will explore in this episode.
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.
Due to the military interventions by the United States and Israel in Iran and Lebanon, emerging economies are experiencing financial strains: rising risk premiums, depreciation of their currencies against the dollar, and a decline in central banks’ foreign exchange reserves. As is often the case, Türkiye is once again in the spotlight due to the sharp fall in the reserves of its central bank.
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Activity indices are holding up, but household confidence is eroding. Business sentiment indicators did not falter in March, and prospects of price rises are confined to a few sectors (oil and chemicals). The downturn is, at this stage, less pronounced in services and construction. Household confidence is deteriorating more noticeably against a backdrop of significantly rising inflation expectations and gloomier prospects for economic activity and unemployment.
The impact of the energy price shock has been limited so far. Expected price indices rebounded only slightly in March, across all sectors (a very different situation to 2022). For the time being, this shock does not involve any major supply constraints. Output is likely to be more severely affected by falling demand as the issue of purchasing power resurfaces. Although this is a concern for households, they have not yet scaled back their spending intentions.
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.
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
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.
The announcement of a 15-day truce between the U.S. and Iran brings some relief, but it doesn’t yet mean the conflict is over. For Gulf countries, this is welcome news, though caution is still warranted. The fact is, key pillars of their economic model have been shaken by this conflict. That said, the impact varies from country to country. And crucially, the Gulf economies have remarkable resilience when it comes to weathering major crises.
