[Analysis] Macroeconomics (March 2026)

Dear WIMM Reader,

Here is the program for next week:

Onto the update:

Iran is dominating March macroanalysis because it reminds markets of something they always forget

1/ political systems in the Middle East can look fragile from the outside and still prove extraordinarily durable from within. Iran is not a country that changes regime easily. The safer historical point is not that Persia had exactly “five” regime changes, but that real regime change in Iran is rare, and the last genuine rupture was the 1979 revolution that replaced the Pahlavi monarchy with the Islamic Republic.

2/ That is also why the latest strikes are unlikely to produce the outcome many in the West casually talk about: regime change. A regime does not fall just because it is bombed; it falls when there is an organized domestic force ready to exploit the shock. In Iran, that force looks absent today. After the mass protests that began at the end of December and the brutal crackdown that followed in January, more than 30,000 were killed according to rights groups, tens of thousands were arrested, and the regime has continued executions and arrests deep into March. In other words, the state has spent months eliminating precisely the people who might have turned wartime weakness into political revolt.

3/ From Trump’s perspective, the problem is no longer only military. It is economic and political. The conflict has pushed oil volatility back to the center of the macro story, with Brent swinging around the $100 level, the Strait of Hormuz disruption threatening global energy flows, and economists warning that higher oil prices would feed inflation and hurt growth. Markets briefly rallied when Trump delayed further strikes, which tells you everything. Investors are currently pricing in an exit, not a victory:

4/ That is why Trump now needs a declaration of success more than he needs escalation:

The Iranians say they didn’t do any negotiations 🫠

5/ The political calendar matters. The US midterm elections are on November 3, 2026, and a prolonged oil-and-inflation shock heading into that vote would be toxic. The theory, then, is simple. Washington wants this to end quickly, claim deterrence, and move on. The problem, as always, is that wars are much easier to start than to stop. De-escalation is the rational outcome, but that does not mean it is the likely one on command.

6/ The war on Iran is also disrupting the fertilizers:

The Strait of Hormuz handles about 30% of the global fertilizer trade. As a result, the disruption has sent prices soaring.

7/ Finally, Financial Times has an opinion on “How the Iran war could derail the AI boom”:

..and the chart:

This matters because the EU-Australia deal is Europe trying to redesign its economic map in a world where trade, energy, and security are now fused together. The chart shows why the EU had an incentive to push this through. Australia already imports far more from Europe than Europe imports from Australia, so Brussels is building on an existing imbalance that favors European exporters and could widen it further if exports rise by a third.

More importantly, the deal gives Europe better access to a politically reliable partner for critical raw materials at a moment when China has shown it can weaponize supply chains, while also sending a broader signal that the EU still believes in rules-based trade as the US becomes more tariff-driven. The irony is that even a strategically smart deal does not solve Europe’s immediate macro problem. If the Iran conflict pushes up oil and gas prices, Europe still faces the risk of imported inflation, weaker growth, and possibly stagflation, which means long-term trade wins may be overshadowed by short-term energy pain.

This matters because Europe’s real risk is no longer just slower growth or just higher inflation, but both at once, and that is the macro combination central banks fear most.

Even in the ECB’s base case growth stays weak and shallow, while in the negative and worst-case scenarios the economy takes an early hit and then recovers only gradually, meaning the room for policy mistakes is very small. If the Iran war keeps energy prices elevated, the ECB could be forced to think about tighter policy exactly when private-sector momentum is already fading, which is the definition of a stagflation trap. The fact that gold is not surging immediately does not really invalidate the risk, but it suggests markets are still digesting the shock, while the deeper drivers (=geopolitical stress, oil vulnerability, and inflation pressure) remain in place.

Wars cost money. From Bloomberg:

“The Pentagon has already asked Congress for $200 billion in extra funding for the Iran conflict. If not offset by new revenue or spending cuts, that would take the 2026 deficit near $2 trillion compared with the $1.78 trillion for fiscal 2025.”

This means more pressure on the dollar:

The bullish argument is that Trump sent a clear message that he’s eager to end a war, which will be enough to allay investor fears. Though given the president history of misstatements and exaggerations, there’s little certainty either way.

Chris Bryant writes: “Germany’s Chancellor Friedrich Merz appears to have drawn at least one important lesson from his recent visit to China. He thinks Germans don’t work enough.”

Merz said that “Prosperity in our country cannot be maintained in the long term with work-life balance and a four-day working week. […] We will simply have to do a bit more.”. The data below agrees with his remarks:

The macro environment today feels like a bloodbath for equities with war risk, energy shocks, inflation fears, central-bank hesitation, and slowing growth all hitting at once. But markets rarely move in a straight line, and they almost never wait for perfect clarity.

My base case remains that this period will look more like a violent reset than a permanent breakdown. As the geopolitical panic fades, inflation expectations stabilize, and investors begin to price the next phase rather than the current shock, sentiment should turn. By around November 2026, we should be much closer to the more constructive scenario, with equities recovering into what could still become a year of more than 10% growth from depressed levels.

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