Economy in Brief

Current global money and credit trends Money supply growth accelerated in February over three months compared to six months in the United States and the United Kingdom. In the EMU, money growth backed down from a 6.3% growth rate over six months to a still hot 5.6% over three months. Japan, as always, was the exception, with money growth sinking to a weak 1.5% over three months from 2.1% over six months. And the Bank of Japan still has its sights on raising rates further and bringing the level of interest rates eventually to a normalized level. In the EMU, credit growth accelerated as private credit grew at a 5.4% pace over three months, up from 5.1% over six months.

Excessive money growth: Money and credit growth are excessive compared to what would seem to be equilibrium conditions. Those conditions right now have economic growth weak, in the region of 1% to 2%, and monetary targets are 2% all around. All of them are being exceeded—at least in terms of core inflation rates.

The IFO readings for March 2026 show that the all-sector climate fell to -17.9 from -14.9 in February. The current conditions index improved by the smallest amount possible, rising to -2.4 after reaching -2.5 in February. Expectations, however, were clobbered, with the index in March falling to -19.7 after posting a -10.8 reading in February.

This expectations module for businesses in March registers a month-to-month drop of nearly 9 points; it ranks 246th out of 252 monthly changes, marking it as an occurrence that is this bad or worse, only 2.4% of the time (only 7 worse readings in the last 21 years). It's a stunning one-month backtrack in expectations for Germany.

Early reactions and developments We are currently in late March, so the reading reflects some reaction to the Iran war, and the reaction that we see certainly suggests that there is a relatively severe reaction by the business community to this war. Of course, the initial phase went extremely well from the standpoint of the United States and Israel, not from the standpoint of Iran. As the war has gone on, the U.S. and Israel have continued to register extremely successful military operations with very few of their own losses. However, it has also become clear that Iran intends to fight back on the ground and has tried to spread the conflict regionally using its missile capabilities—which appear to be more far-reaching than previously thought. We are left with the impression that Iran is prepared to engage in guerrilla warfare, which would be very difficult for conventional military operation to completely stamp out. The U.S. has resisted a call for boots on the ground although Donald Trump appears to be sending some paratroopers into the region. The U.S. has threatened to take control of Iran’s crown jewel of oil operations, Kharg Island. This threat has been made to counter Iran’s efforts to try to close the Strait of Hormuz, probably its only trump card. The U.S. has issued additional threats against Iran if it doesn't reopen the strait and allow oil traffic to pass again.

These conditions are, in many ways, a worst-case scenario for Europe and certainly a worst-case scenario for China and Japan that are so incredibly dependent on oil imports. Europe gets its oil imports substantially from the Middle East, meaning that those imports have to flow through the Strait of Hormuz. And then there's the embargoed Russian oil. There has been Iranian oil that has been on the market, having slipped through embargoes using clandestine tankers. U.S. actions in Venezuela have shut down the Venezuelan shipments that were substantially to China. All of these moves create a great impact, an impasse from oil scarcity, which has led to rising oil prices even though the U.S. has uncorked its strategic petroleum reserve and has promised to make more supplies available from that source. Unlike during 1973-75, the U.S. sits in the catbird seat.

The oil weapon has been broken out, and at the same time, turnabout has become fair play as the U.S. now has the upper hand on oil as Iran crimped the supply through the Strait of Hormuz. Strangely, much of Europe had said it would opt out of the U.S. plan to reopen the strait, but after a short period of time, 22 countries have now signed on to help unplug this strait.

Beyond oil (...sort of) The IFO survey shows expectations have dropped exceedingly hard in response to these events, with the expectation standings by industry ranging from a high of 16.1% in manufacturing to a low of 3.1% in retailing and 5.8% for services in general. The net diffusion readings for March range from a negative reading of -39.3 in retailing to a negative reading of -13.8 in manufacturing.

The current conditions rankings range from a high percentile standing in its 70.6 percentile for construction to a low standing in its 16.9 percentile for services.

And this is a report that has not given survey respondents a lot of time to see and react to events.

A Broad Weakening The Standard and Poor’s global PMI data show broad weakness in March compared to February. The early ‘flash’ report provides sector details for seven countries plus the consolidated European Monetary Union reading. For each reporting unit, there are readings for the composite, the manufacturing sector, and services. In March, there was a weakening on a month-to-month basis for every reporter in all sectors except manufacturing. The four manufacturing exceptions were the United States, France, Germany, and the monetary union as a whole. That means India, Australia, Japan, and the United Kingdom recorded weakening in their composite, manufacturing, and services readings in March. Meanwhile, the monetary union, Germany, France, and the U.S. that posted stronger readings in manufacturing were still dominated by weaker readings in services, causing their composites to weaken month-to-month without exception.

A Sudden Weakening These results compare to February when 13 of 24 reporters recorded stronger sector or composite readings month-to-month. In February, the monetary union and Germany reported stronger readings in all three measures—the composite, manufacturing, and services; Japan did the same. January had a much stronger month overall, with increases in most sectors across most reporting units with a few exceptions. France reported weaker services and a weaker composite, the monetary union reported weaker services and a weaker composite, and Germany reported only a weaker services sector. The remaining five reporters recorded stronger readings in all three sectors. The war in Iran has clearly interrupted what had appeared to be a strengthening, though still uneven, economic recovery.

Sequentially Different Patterns Sequential data (3-month, 6-month, and 12-month averages) do not include March since March data are still preliminary. Sequentially, the trends are mixed, with the monetary union and Germany showing weaker conditions over the three months compared to six months, but stronger conditions over six months compared to 12 months for all three sectors The United States also reports weaker conditions over three months compared to six months, and it reports weakening over six months compared to 12 months for services as well. As for manufacturing, although the U.S. services sector is weaker consistently including for 12 months compared to 12 months ago, the United Kingdom and France show strengthening in all three sectors over three months compared to six months and over six months compared to 12 months. Japan shows strengthening on that same basis, except that there's a weakening of services over three months compared to six months.

There is a mixed picture as far as trend is concerned and some areas have been stronger consistently, and others have progressed faster than others. But March has brought weakness across the board.

The Percentile Averages: The queue standings (or rank standings) show and average percentile standing for the composites (unweighted) at 41.7% over all data since January 2022. Manufacturing currently is relatively strong on this comparison with a 66.9 percentile standing. Services are weak with a 30.4 percentile standing.

The Diffusion Average: Based on data since January 2022, the average composite reading for this set of reporters is 51.9. The manufacturing average is 50.0, and the services average is 52.4. So, all rankings are relative to that set of data. Since 2022, France has had the lowest diffusion reading, with a composite average at 49.2—it has been consistently shrinking.

Manufacturing: Manufacturing has been weakest in German, with an average PMI reading of 46.6. However, France, the United Kingdom, Japan, and the EMU also have average manufacturing sector readings below 50, indicating ongoing manufacturing contraction.

Services and Comparisons: Only France has averaged a service sector contraction since January 2022. Over this period, India has had the strongest diffusion readings across all sectors. The U.S. has logged the second-strongest PMI readings in services, manufacturing, and the composite.

The U.S. as a benchmark and sticky conditions: For the U.S., the average has been 52.2 for the composite, 51.0 for manufacturing, and 52.4 for services. Since these are the second-strongest set of readings, it makes clear that the readings for this period have been quite tepid. Whatever recovery was in progress was probably slow and fairly fragile. Central banks had largely brought inflation down and, in some sense, ‘under control,’ but still, not to target. These sticky realities have been dogging policy-makers. It has been a difficult period. Of course, the Russia-Ukraine war dragged on, Hamas attacked Isreal, Iran’s nuclear facilities were destroyed, the Trump tariffs remained in place, and a second attack on Iran—intended to undermine its surviving nuclear ambitions—was launched with a goal to degrade its huge cache of missiles and drones as well.