Global Economy Briefing — March 21, 2026

The Big Three

Economic Dashboard

Europe

Energy shock blows a hole in Europe’s trade surplus

The Eurozone’s January trade balance collapsed to a €1.9 billion deficit, shattering expectations for a €12.8 billion surplus and marking the first deficit since the 2022 energy crisis. Surging crude and liquefied natural gas import costs from the Iran war are the immediate cause, mirroring the pattern that pushed Germany into recession three years ago. The current account told a contradictory story — surging to €37.9 billion against €17.2 billion expected — but the divergence reflects lagging services income, not goods strength.

German producer prices told the other side of the same story: factories cannot pass energy costs through to customers. The 0.5% monthly decline in the PPI — against consensus for a 0.3% rise — shows manufacturers absorbing margin compression rather than risk losing orders in a weakening demand environment. Year-on-year deflation deepened to −3.3%, worse than the −2.7% expected, the kind of deterioration last seen during the 2022–23 industrial recession.

Italy’s trade balance suffered similarly, printing just €1.09 billion against €5.65 billion expected, as energy import costs overwhelmed the manufacturing export engine. The UK piled on bad news: public sector net borrowing hit £14.3 billion in February, nearly double the £8.7 billion forecast, raising questions about Chancellor Reeves’s fiscal headroom ahead of next month’s Spring Statement. The CBI industrial trends orders reading improved slightly to −27 from −28, beating the −30 consensus, but remained deeply negative.

European equities reflected the damage. The pan-European STOXX 600 fell 1.7% as oil and gas was the only sector in the green. Germany’s DAX dropped 1.7% to fresh 11-month lows, while the FTSE 100 hit its lowest level of 2026 on fears that rate hikes — now priced for the BoE following Thursday’s unanimous hold — will further squeeze consumer spending. Bundesbank President Nagel spoke late Friday but offered no new guidance on the ECB’s rate path.

United States

Iraq force majeure sends stocks toward correction

Wall Street cratered on Friday as Iraq’s force majeure declaration and drone strikes on Kuwait’s Mina Al-Ahmadi and Mina Abdullah refineries sent oil surging past $112 Brent. The S&P 500 fell 1.51% to 6,506.48 — approaching correction territory — while the Nasdaq dropped 2.01% to 21,647.61 and the Dow shed 443.96 points to 45,577.47. The small-cap Russell 2000 slipped into an official correction, down more than 10% from its recent high.

The 10-year Treasury yield surged 10 basis points to 4.37%, its highest since July 2025, as markets increasingly price out rate cuts and begin entertaining the possibility of a hike. Macquarie openly called for the next Fed move to be upward. The dollar index climbed to approximately 100.35, a three-and-a-half-month high, further pressuring emerging-market currencies and commodity importers across Latin America.

Gold continued its brutal week, falling roughly 2.5% to around $4,492 per ounce — its worst weekly performance since 1983 — as rising real yields and dollar strength overwhelmed safe-haven demand. The VIX surged 11.3% to 26.78, reflecting acute fear heading into the weekend. Pentagon deployment of additional Marines to the region underscored the risk of further escalation, while Iran reportedly began laying mines in the Strait of Hormuz.

The Baker Hughes oil rig count ticked up to 414 from 412 — a marginal increase as US producers begin responding to the price signal but far too slow to offset Gulf supply losses. Georgia’s governor suspended the state’s gas tax amid rising fuel prices, a politically potent move that signals the energy shock is reaching the consumer. Market pricing for a Fed rate hike this year has shot up, with traders now split between one hike and none.

Asia-Pacific

Japan holiday shields Nikkei; China slides on energy fears

Japan’s Nikkei 225 was closed for the Vernal Equinox holiday, sparing it from Friday’s global rout but setting up a potentially volatile Monday open. After Thursday’s 3.38% plunge — the index’s steepest single-day loss in weeks — the extended weekend leaves Japanese investors exposed to any weekend escalation in the conflict without the ability to hedge.

The Shanghai Composite dropped 1.24% to 3,957 as the war premium in energy prices weighed on the world’s largest crude importer, despite China’s relative resilience from diversified supply chains and strategic reserves. Hong Kong’s Hang Seng fell 0.88% to 25,277, extending its slide below the key 25,615 support level. China’s foreign direct investment continued to contract at 5.7% year-on-year through February, unchanged from the prior reading.

India’s foreign exchange reserves declined by $7 billion to $709.8 billion, reflecting the Reserve Bank of India’s ongoing intervention to defend the rupee amid dollar strength and elevated oil import costs. Infrastructure output growth slowed sharply to 2.3% in February from 4.7% in January, adding to concerns about the war’s drag on Asia’s third-largest economy and the world’s third-largest oil importer.

The broader risk for Asia-Pacific centres on Brent’s trajectory above $110: every $10 increase in oil adds roughly 0.3% to US inflation according to Goldman Sachs, but the pass-through is even larger for oil-importing Asian economies. If crude sustains these levels into April, current-account deficits in India, South Korea, and Thailand will widen materially, forcing their central banks into a dollar-defending posture that tightens domestic financial conditions.

Latin America & Africa

Durigan takes Brazil’s helm; Argentina GDP cools

Brazil’s Dario Durigan officially assumed the Finance Ministry on Friday after Fernando Haddad’s resignation to run for governor of São Paulo. The 41-year-old former executive secretary pledged “continuity” and signalled he will delay divisive tax legislation — including crypto taxation rules and a proposal to end investment-letter exemptions — to preserve political capital ahead of October’s presidential election, where Lula faces a tight race against Flávio Bolsonaro.

Durigan’s immediate priorities include big-tech economic regulation, financial-institution crisis-management rules, and the Redata data-centre investment programme. The transition comes at a delicate moment: as reported in our previous global economy briefing, the Copom cut the Selic by 25 basis points to 14.75% on Wednesday, but the hawkish tone and war-driven inflation risks make the May path uncertain. An economist at the Getulio Vargas Foundation warned that managing the Iran war’s impact on Brazil will be “quite complex” for the new minister.

Argentina posted 2025 full-year GDP growth of 4.4%, a sharp recovery from the prior year’s 1.72% contraction. However, the Q4 reading of 2.1% year-on-year slightly missed the 2.2% consensus and decelerated from Q3’s 3.3%, suggesting the Milei-era rebound is losing momentum. Retail sales remained strong at 25.1% year-on-year in January, though easing from 25.5% previously. The CFTC data showed speculative net long positions on the peso edging down to 49.3K from 51.0K contracts.

Mexico delivered a positive surprise: Q4 aggregate demand surged 4.5% year-on-year versus just 1.1% in Q3, with private spending accelerating to 4.0% from 1.6%. Canada’s retail sales beat spectacularly at +1.1% month-on-month versus −0.4% expected, signalling the consumer remains resilient despite the March jobs shock reported two weeks ago. The preliminary February retail estimate of +0.9% reinforced the momentum, complicating the Bank of Canada’s easing narrative.

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