Clouds of the Middle East war loom: France's GDP growth stagnated in the first quarter, and the Eurozone is deeply mired in "stagflation" quagmire.

French economy failed to grow in the first quarter, showing vulnerability in the face of stagflation threats triggered by the Iran war. Data from the French National Statistics Institute shows that due to weak trade and insufficient domestic demand, GDP in the first quarter of 2026 remained unchanged from the previous quarter. The growth rate in the previous quarter was 0.2%, which is lower than the median expectation of 0.2% by surveyed economists. French economy did not grow in early 2026 The data released on Thursday marked the start of a busy morning for the major economies in the Eurozone, which will ultimately be capped off by the overall data for the Eurozone with 21 member countries, expected to show stable growth of 0.2%. As a result of this data, the Euro maintained its decline, with trading prices falling by 0.1% to 1.1661 USD. However, as these reports only cover the first month after the outbreak of the Middle East conflict, they do not reflect the full extent of the economic slowdown that Europe is currently experiencing. Surging energy costs are currently affecting the entire economy, suppressing production activities and leading to the highest inflation rate since 2022. The European Central Bank is expected to keep interest rates at 2% later today, while still evaluating the economic consequences of the conflict and adjusting response measures. However, it is widely believed that the ECB will raise rates in June and two more times before the end of the year. As surveys show rising price expectations for businesses and households, some degree of tightening policy may prove necessary. Eurozone inflation data released concurrently with GDP data may show inflation accelerating from 2.6% in March to 3%. The sharp rise in prices faces the risk of further output cuts. France and Italy have already lowered growth expectations, while Germany has halved its growth forecast for 2026 to 0.5%. European Commission President von der Leyen has previously warned that this damage will last for years. Currently, data from France shows that the economy has been constrained by a 0.1% decline in consumer spending and a 0.7% decline in household investment in the first quarter. Business investment, which stagnated at the end of 2025, also decreased by 0.2% this quarter. Due to a significant 3.8% decline in exports, net trade made a negative contribution of 0.7% to GDP. Inventory accumulation offset this drag, bringing a 0.8% growth boost. Iran war leads to a drop in confidence index Another report released shows that consumer spending jumped by 0.7% in March, but this followed a 1.4% decline in February, with analysts predicting a slightly stronger rebound of 0.8%. Meanwhile, the French government has warned that the Iran war will cause the country's finances to suffer losses of up to 6 billion euros (about 7 billion USD) this year. The government stated that this impact will be offset by freezing expenditures.