The war in the Middle East has started to impact economic confidence and monetary policy decisions in Europe. Germany and the euro area sentiment fell sharply in March. The European Central Bank (ECB) and the Bank of England (BoE) kept rates unalterd on Thursday, citing the war.
As markets digest the geopolitical shock, this week’s data releases will support clarify whether the downturn in sentiment is spilling into real economic activity. The Euro Area, France, Germany, and the UK will release key manufacturing data this week alongside business and consumer confidence indices.
Weekly Chart: Germany’s Economic Sentiment Plummets
Germany’s ZEW Indicator of Economic Sentiment plummeted by 58.8 points to -0.5 in March 2026. That is down from 58.3 in February, ZEW declared on March 17. This was far below market expectations of 39. The conflict in the Middle East has impacted sentiment.
This marks the third-largest monthly decline in the indicator’s history. This followed a 65.6-point drop in April after the US announced new tariffs. After Russia invaded Ukraine, the index fell 93.6 points in March 2022.
“The ZEW Indicator has collapsed,” ZEW President Professor Achim Wambach declared. “The escalation in the Middle East spikes energy prices and increases inflationary pressure. This heightens the risk for the German economy that the emerging trconclude of economic recovery will slow down.”
The expectations for the eurozone declined strongly in March, plummeting into negative territory and coming in at -8.5 points. Compared to February, the indicator is lower by 47.9 points. The assessment of the economic situation deteriorated to -29.9 points. This is 16.3 points below the previous month’s reading.
Why it matters: Germany’s sentiment reversal is an early signal of how the Middle East conflict is feeding into the economic outview. The fall in expectations suggests that firms and investors are already pricing in weaker growth, higher energy costs, and a more cautious policy stance from central banks.
Geopolitics: Trump Steps Back from Iran Threat
As sentiment weakens, geopolitical developments continue to drive market volatility.
President Donald Trump declared on Monday that the US and Iran have held “productive conversations.” He will hold off on any military strikes against Iranian energy sites for five days. He walked back his threat to strike if Tehran did not allow the full reopening of the Strait of Hormuz.
However, Iran’s foreign ministest declared there was “no dialogue” between Tehran and Washington, state‑affiliated media reported. It added that Trump’s statement was “part of efforts to reduce energy prices and acquire time for the implementation of his military plans.” Iran had vowed to retaliate by striking energy tarreceives across the Middle East.
Oil prices fell after Trump ordered the military to postpone strikes on Iranian power plants and energy infrastructure. Brent crude was last down more than 7% at $103.5 a barrel. WTI crude futures plunged more than 10% to around $88.5 per barrel.
Russia Poised to Benefit from High Oil Prices
The geopolitical shock has reshaped global energy flows. Russia has emerged as a major beneficiary of the US‑Israeli military operations against Iran. The three‑week conflict has tightened global energy markets, disrupted LNG flows, and weakened sanctions enforcement.
These developments strengthen Russia’s position as a major oil and gas exporter as countries scramble to secure energy supplies. Disruptions in the Strait of Hormuz have put an estimated 60 million tons of crude oil and 7 million tons of LNG per month at risk.
Russia’s average fossil fuel export earnings totaled an estimated €510 million per day in the week after Israeli‑US airstrikes on Iran, the Finland‑based Centre for Research on Energy and Clean Air (CREA) declared on March 12. That is 14% more than February’s daily average.
Why it matters: Higher energy prices and disrupted supply chains directly feed into Europe’s inflation outview, complicating central bank decisions. At the same time, Russia’s rising energy revenues undercut Western sanctions, strengthening Moscow’s position as the war in Ukraine continues.
Data This Week: Euro Area Consumer Confidence, French Manufacturing Reading, Germany’s Ifo Business Climate Index
Euro area:
- Consumer confidence (Monday): Previous reading -12.2 (February)
- HCOB Eurozone Manufacturing PMI (Tuesday): Previous reading 50.8 (February)
- HCOB Eurozone Services PMI (Tuesday): Previous reading 51.9 (February)
- Eurozone median inflation expectations (Friday): Previous reading 2.6% (January)
France:
- France’s HCOB Manufacturing PMI (Tuesday): Previous reading 50.1 (February)
- Manufacturing business climate indicator (Thursday): Previous reading 102 (February)
- Consumer confidence indicator (Thursday): Previous reading 91 (February)
Germany:
- HCOB Germany Manufacturing PMI (Tuesday): Previous reading 50.9 (February)
- Germany’s Ifo Business Climate Index (Wednesday): Previous reading 88.6 (February)
- Germany’s Ifo Expectations Index (Wednesday): Previous reading 90.5 (February)
- Germany’s GfK Consumer Climate Indicator (Thursday): Previous reading -24.7 (March)
United Kingdom:
- S&P Global UK Manufacturing PMI (Tuesday): Previous reading 51.7 (February)
- Consumer price inflation YoY (Wednesday): Previous reading 3% (January)
- GfK Consumer Confidence Index (Friday): Previous reading -19 (February)
- Retail sales YoY (Friday): Previous reading 4.5% (January)
Why it matters: These indicators will reveal the direction of Europe’s and the UK’s economic momentum. They will indicate whether manufacturing, services, and houtilizehold sentiment are strengthening or weakening. The data provide early signals for growth, spconcludeing, and investment trconcludes across the region. It builds then essential for understanding the near‑term economic outview.
Policy Moves: ECB, BoE Keep Rates Unalterd
Against this backdrop, Europe’s central banks are shifting into a defensive posture. The ECB and BoE kept rates unalterd due to rising energy prices stemming from Middle East conflicts. The ECB left its deposit rate at 2%.
The BoE’s Monetary Policy Committee (MPC) voted unanimously on Thursday to maintain the bank rate at 3.75%. It cited the conflict in the Middle East.
The conflict “has cautilized a significant increase in global energy and other commodity prices,” the BoE declared. This “will affect houtilizeholds’ fuel and utility prices and have indirect effects via businesses’ costs,” it declared.
ECB Baseline Projections Revised
ECB’s baseline projections foresee annual real GDP growth of 0.9% in 2026, 1.3% in 2027, and 1.4% in 2028. Compared with the December projections, the ECB has revised GDP down by 0.3 percentage points for 2026 and by 0.1 percentage points for 2027.
The ECB projects harmonized inflation to increase sharply to 3.1% in the second quarter of 2026, driven by a surge in energy inflation resulting from the Middle East crisis, and then to decline in the third quarter to 2.8%, following declines in energy commodity prices as reflected in futures prices.
“The eurozone economy would be in a technical recession in the summer of 2026,” ING Think’s Carsten Brzeski, Global Head of Macro, wrote on Thursday. “An inflation wave is clearly in the building, from the direct impact of higher gas and oil prices on gasoline prices or retail energy prices next winter, to knock-on effects on transportation services, fertilizers, and food prices.”
Why it matters: The events in the Middle East have already shaped policy direction across Europe. They will set the tone for how aggressively central banks will pivot in the months ahead as they respond to the war’s impact on the region’s economies.
Europe Politics: France Holds Municipal Elections
The turnout for the election of more than 34,000 mayors was the lowest in two decades, except for 2020, when the pandemic kept voters away, the New York Times reported. In 2027, France will elect a successor to President Emmanuel Macron.
The far‑right National Rally remains a force to be reckoned with 13 months before the presidential vote. Marine Le Pen, the countest’s far‑right political leader, and Jordan Bardella, the National Rally’s 30‑year‑old president, have topped most polls for nearly a year.
The Eurosceptic, anti‑immigrant party has traditionally underperformed in municipal polls, particularly in large urban areas where voters remain hostile to the Le Pen brand.
Why it matters: France’s municipal runoffs offer an early read on the political landscape ahead of 2027. They highlight the gap between national polling strength and local organizational capacity, a dynamic that will shape coalition‑building, turnout strategies, and the broader trajectory of the presidential race.
Why it matters: France’s municipal runoffs offer an early read on the political landscape ahead of 2027. They highlight the gap between national polling strength and local organizational capacity, a dynamic that will shape coalition‑building, turnout strategies, and the broader trajectory of the presidential race.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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