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German Economy Sees Q1 Growth but War Clouds Outlook

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Germany’s central bank, the Deutsche Bundesbank, said the country’s economy likely recorded modest growth in the first quarter, supported by solid industrial output and resilient services activity. Despite weakening consumer confidence toward the end of the quarter, exports and business-related services helped sustain overall momentum.

However, the outlook for the second quarter remains fragile as the ongoing Iran conflict begins to weigh more heavily on Europe’s largest economy. The war has pushed up energy prices, disrupted supply chains, and increased uncertainty, all of which are expected to dampen growth. The Bundesbank cautioned that only slight expansion is likely in the near term, even as government spending aims to support recovery.

Rising fuel costs have already eroded household purchasing power, weakening private consumption further. In addition, softer global demand and cautious business sentiment are expected to impact exports and investment. While fiscal measures may provide some support, escalating geopolitical risks continue to pose significant challenges to Germany’s economic outlook.

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France Plans Spending Freeze to Offset Iran Crisis Costs

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The government of France has announced plans to offset the financial impact of the ongoing Iran crisis by freezing public spending. Rising energy prices and increased borrowing costs linked to the crisis are expected to cost the country between €4 billion and €6 billion. Authorities say the spending freeze will match these projected losses, helping stabilize public finances.

Finance Minister Roland Lescure stated that higher bond yields alone could add €3.6 billion to France’s borrowing costs. Meanwhile, the government is preparing targeted support measures to help households cope with surging energy prices. These measures are expected to prioritize workers who rely heavily on fuel, reflecting growing concerns over the cost-of-living impact.

Despite the planned response, the government faces mounting political pressure for broader relief measures. While some groups are calling for fuel tax cuts, others are pushing for caps on energy prices. However, with one of the largest budget deficits in the eurozone, officials insist that any support must remain limited and carefully targeted to avoid further straining public finances.

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Radev Sweeps Bulgaria Election in Landslide Victory

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Rumen Radev has secured a sweeping victory in Bulgaria’s parliamentary election, paving the way to lead the country’s first single-party government in nearly 30 years. The former president capitalised on widespread public frustration with corruption, political instability, and rising living costs, following years of repeated elections and fragile coalitions.

Radev, a former fighter pilot often viewed as sympathetic to Russia, positioned himself as an anti-establishment figure promising reform. His win also dealt a major blow to traditional parties, including those led by Boyko Borissov. Despite his rhetoric and past criticism of EU policies, analysts believe he is unlikely to risk jeopardising crucial European Union funding or dramatically shift Bulgaria’s geopolitical alignment.

The new government faces significant domestic challenges, including tackling corruption, stabilising the economy, and restoring public trust in institutions. While some voters remain concerned about his perceived pro-Russian stance, many see his decisive mandate as an opportunity to bring stability after years of political turmoil.

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Hungary Enters New Era as Orbán Ousted in Landslide

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Hungary is set for a major political shift after Péter Magyar and his Tisza party secured a sweeping victory, ending Viktor Orbán’s 16-year rule. Winning 52% of the vote and a two-thirds parliamentary majority, Magyar has moved quickly to accelerate the transition of power, with plans for parliament to convene in early May. His government is already outlining reforms, including curbing media influence and introducing term limits that could block Orbán from returning to office.

Orbán, who finally addressed the defeat days later, described it as “the end of an era” and accepted responsibility, though he offered little reflection on campaign failures. His Fidesz party suffered a dramatic drop in representation and now faces internal uncertainty, with no clear successor emerging. The loss has exposed growing dissatisfaction among voters, especially younger generations, and highlighted the challenges of maintaining support after years in power.

Magyar’s incoming administration is expected to act swiftly on anti-corruption measures, economic recovery, and restoring democratic institutions. Priorities include preventing capital flight, preserving evidence of alleged wrongdoing, and unlocking withheld EU funds by meeting governance standards. With Hungary’s economy struggling, the new leadership faces pressure to deliver rapid reforms while redefining the country’s direction both domestically and within Europe.

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French Businesses Engage Far Right Ahead Of 2027 Vote

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France’s corporate elite is increasingly engaging with Marine Le Pen and her National Rally as the party gains momentum ahead of the 2027 presidential election. A recent dinner in Paris with top executives, including Bernard Arnault, highlighted growing efforts by business leaders to better understand—and potentially influence—the party’s economic agenda.

The meeting exposed clear divisions, particularly over Le Pen’s eurosceptic stance and her plans to reverse pension reforms. While she presented herself as pro-business, executives reportedly found her policy proposals lacking in detail, especially on trade and taxation. Despite past reluctance, major companies now see engagement as necessary given the party’s rising electoral prospects.

Business groups, including Medef, say dialogue does not imply support but reflects a need to prepare for possible political change. However, some executives warn that engaging with the far right risks legitimising a party whose economic plans remain unclear. Both sides appear to be testing boundaries, as companies seek to shape policy while the National Rally works to reassure markets.

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Italy Cuts Growth Outlook as Energy Costs Weigh on Economy

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Italy is set to lower its economic growth forecasts as rising energy prices continue to pressure its economy, Economy Minister Giancarlo Giorgetti said. The government is expected to trim this year’s GDP growth estimate to around 0.5%–0.6%, down from 0.7%, while next year’s outlook may also be reduced slightly. The slowdown is largely attributed to external and temporary factors, particularly the ongoing energy crisis.

The weaker growth outlook complicates Italy’s efforts to reduce its budget deficit below the European Union’s 3% threshold. With the deficit already projected at 3.1% in 2025, slower expansion could limit fiscal room and make it harder to meet agreed targets. Despite these challenges, officials maintain that recent data does not indicate any structural weakness in the economy.

Italy has urged the European Union to consider temporarily easing its budget rules if geopolitical tensions, especially involving Iran, worsen further. While existing mechanisms allow flexibility during severe downturns, current conditions do not yet meet that threshold. Meanwhile, Italy remains under EU scrutiny for its deficit, restricting its ability to introduce major relief measures.

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German Inflation Rises Amid Energy Shock from Iran Conflict

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Inflation increased to at least 2.5% across four German states in March, driven largely by rising energy prices linked to the ongoing U.S.-Israeli conflict with Iran. In North Rhine-Westphalia, Germany’s most populous state, annual inflation climbed to 2.7% from 1.8% in February. Similar increases were recorded in Bavaria, Baden-Wuerttemberg and Lower Saxony, signalling a likely nationwide rise in inflation figures expected later in the day.

Economists surveyed by Reuters predict Germany’s harmonised inflation rate will reach 2.8% in March, up from 2.0% the previous month. Analysts warn that while energy costs are currently the main driver, broader price increases may follow. Berenberg Bank chief economist Holger Schmieding said higher transport costs and potential fertiliser shortages could push food prices higher, with inflation possibly exceeding 3% if the conflict continues.

A survey by the Ifo institute showed German companies increasingly expect to raise prices due to rising production and transport expenses. The data comes ahead of eurozone inflation figures, with markets anticipating further monetary tightening by the European Central Bank. Investors now expect up to three interest rate hikes this year as policymakers respond to mounting inflation pressures.

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Europe Retailers Warn of Price Surge Amid Middle East conflict

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European retailers are warning of rising prices and weakening consumer demand as the ongoing Middle East conflict drives up energy and transportation costs. Companies across the sector say prolonged disruption could fuel inflation, with oil prices already climbing above $100 per barrel and increasing pressure on global supply chains.

Major retailers including H&M and Next have signalled potential price increases in the coming months. While short-term hikes may remain modest, executives caution that prolonged conflict could push prices significantly higher, particularly as manufacturing and freight costs rise. Firms are relying on flexible supply chains to manage uncertainty but acknowledge growing risks.

At the same time, consumer confidence across Europe is weakening, with falling retail sales and declining sentiment in countries such as the UK, Germany, and Italy. Retailers like Co-op warn that households are becoming more cautious amid rising living costs, and further escalation of the conflict could intensify inflationary pressures, dampening spending and slowing economic growth.

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Iran war Dampens Tourism in Cyprus and Greece

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The ongoing Iran conflict has begun to impact tourism in Cyprus and Greece, with rising cancellations and a slowdown in new bookings ahead of the crucial summer season. The situation escalated after military strikes in late February and subsequent counterattacks, including a drone strike near a British base in Cyprus, triggering concerns among travellers and leading to a sharp drop in visitor interest.

In Cyprus, cancellations for short-term rentals surged dramatically, at one point reaching nearly 100% in the days following the escalation, before easing to around 45% by late March. The country’s hospitality sector has reported significant declines in bookings for March and April, prompting the central bank to cut its 2026 economic growth forecast. Airlines and travel operators have also noted reduced demand, with tourists shifting preferences to destinations like Spain.

Greece has also seen a slowdown, particularly in pre-bookings, although the impact has been less severe. Major carriers report declining demand from key markets such as Israel and Gulf countries, while tourism officials remain cautiously optimistic. Industry stakeholders warn that if the uncertainty continues into peak summer months, it could pose a serious risk to economies heavily reliant on seasonal tourism.

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Ireland Plans Fuel Duty Cuts to Ease Rising Energy Costs

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The Irish government has announced plans to reduce excise duty on petrol and diesel in an effort to ease pressure on motorists facing sharp fuel price increases linked to ongoing conflict in the Middle East. The temporary measures, expected to take effect from midnight Wednesday until the end of May, will lower diesel duty by 20 cents per litre and petrol by 15 cents per litre, pending cabinet approval.

Fuel prices have surged in recent days, with diesel rising from around €1.80 per litre to between €2.20 and €2.30, while petrol prices climbed close to €2 per litre. In addition to the duty cuts, authorities are preparing a backdated diesel rebate scheme aimed at supporting hauliers and bus operators, along with reductions for agricultural and green diesel users.

The broader support package, estimated to cost €235 million, will also include targeted energy assistance for pensioners, carers, and people with disabilities. Irish Prime Minister Micheál Martin noted that recent diplomatic developments involving the United States and Iran had helped lower crude oil prices but declined to confirm whether the changes would alter the government’s planned relief measures.

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