Global Economics Mid-Year Outlook: A Fluid Outlook

Research evidence excerpt

Global Economics Mid-Year Outlook: A Fluid Outlook

Global InsightM• Global growth is fundamentally supported by continued US momentum in AI-

driven capex and high-end consumer spending, which over time should allow

for a broadening in macro drivers. China is more insulated than Europe,

although in each case the energy shock will damp but not derail the expansion.

• The duration of the energy disruption is consequential – our base case assumes

crude back to $90/bbl at the end of the year and further declines in 2027. A

more-protracted oil price dislocation would exacerbate growth and inflation

risks, and a permanent risk premium for oil would stall the return to target

inflation globally. An “escalation” scenario – where oil prices surge through

$150/bbl – would mean physical shortages, supply chain disruption, and

recessionary outcomes.

• The growth drag and inflation boost from the energy supply shock differ

meaningfully across regions – we see only a modest and temporary effect on

the US, while Europe is more exposed, with a particularly quick boost to

inflation. Across Asia, the variation is high, but North Asian growth is somewhat

insulated by fiscal policy.

• Global disinflation was interrupted in 2026 by the energy supply shock but

should resume in 2027. That said, even with a rapid resolution, production,

shipping, and inventories will require months to normalize.

• Monetary policy has shifted to be less accommodative across the G10

(excluding Japan), but the effect should be temporary if the conflict’s

persistence is less than two quarters. We see the Fed cutting in early 2027 after

data shows a clear path to disinflation; the BoJ retains its pre-existing hiking

path; while the ECB grapples with energy-led inflation in 2026 before pivoting