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Economic outlook 2026-27: The Fog of War
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In summary:
- The war in the Middle East sets the stage. For the US and Europe, we expect lower growth, higher inflation, stronger fiscal pressure and a challenging situation for central banks. Global GDP is expected at +2.6% in 2026 (revised down by –0.5pp), inflation at 3.2% in the US and 3.0% in the Eurozone this year (revised up by +0.7pp and +1.1pp, respectively) and trade growth at +1.5% in 2026 (revised down –0.5pp).
- The Gulf countries (GCC) and Asia remain most directly exposed while China should still grow by +4.6% in 2026. Watch for triple-deficit economies facing recession risks while some commodity exporters benefit from diversification. Triple-deficit economies, combining fiscal, current account and energy deficits, are particularly vulnerable to capital outflows, higher inflation and recession.
- It could get worse before it gets better: A worsening of the conflict would cause a stagflationary recession. Mind the chain reaction. In our downside scenario, a prolonged closure of the Strait of Hormuz (>3 months) would magnify the economic shock, with oil rising temporarily to 180 USD/bbl and gas to 200 €/MWh before easing back to 85 USD/bbl and gas to 65 €/MWh towards the end of the year, given the demand-side destruction.
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