Global Economic Outlook: March 2026

Events in the Middle East have materially changed the near-term economic and financial outlook. In our March update, we have raised 2026’s inflation forecasts and lowered 2026’s growth forecasts pretty much across the board. How the conflict and related disruptions evolve in the period ahead will be pivotal to the effects on commodity and financial markets and the economic implications.

Our updated forecasts are based on short-lived disruptions to energy production and supply, of just a few weeks. The price of Dated Brent crude oil is expected to average $90 per barrel (/b) in March, followed by a gradual moderation from April and a return to around $60/b, the prior baseline, by year-end. The assumptions for gas prices in the most affected regions, including Europe and Asia-Pacific, follow a broadly consistent profile.

The uncertainty surrounding these assumptions is very high and alternative scenarios incorporating more persistent disruptions, higher-for-longer energy prices and more pronounced effects on global financial markets result in much higher inflation rates and much weaker growth outcomes.    

Economies’ sensitivities to the conflict and its knock-on effects differ. Many of the largest economies in Asia-Pacific, for example, are heavily reliant on energy supplies from the Middle East. But this is just one aspect to consider.

The impact on an economy will also be determined by a range of other factors, including its energy mix, strategic reserves, policy responses and whether it is a net energy importer or exporter. As the US and Canada fall into the latter category, this mitigates the impact on their projected growth rates this year —although we still reduced our US forecast this month due to weaker “carry over” effects stemming from lower-than-expected growth in the final quarter of 2025.

As many of Western Europe’s largest economies are major net energy importers, sensitive to higher gas prices and were struggling to generate much growth momentum before the conflict, the reductions to our growth forecasts there are relatively large.

S&P Global’s “flash” Purchasing Managers Index (PMI®) data for March, which will be released on the 24th, will provide the first indications of the fallout on economic activity. 

The duration and breadth of the pick-up in inflation rates will be pivotal to how central banks respond. Consistent with much higher assumptions for energy prices in some regions, our near-term consumer price inflation forecasts have been raised substantially.

How central banks react to an energy price shock will partly depend on its persistence and related to that, the likelihood of “second round” effects on inflation. In line with a base case assumption of limited disruption to energy prices and supply, we assume that the major central banks will “look through” short-term, energy-driven rises in inflation.

However, their collective underestimation of inflationary pressures following the COVID-19 pandemic and the subsequent Russia-Ukraine conflict increases the likelihood of a “stitch in time saves nine” approach this time around should the conflict and related disruptions look like persisting.

The “risk off” environment in global financial markets is an additional growth headwind. Global financial conditions have tightened since late February, with equity prices declining and bond yields and spreads increasing. Concerns about potential problems in private markets are also back in the headlines.

Monetary policy expectations in futures markets have also shifted markedly to reflect the change in inflation prospects and risks. At the time of writing, policy rate hikes in Western Europe are partly priced in for this year. Our prediction is still for no change from the European Central Bank, contingent on the assumptions of short-lived energy disruptions and a relatively low risk of “second round” effects on inflation. We still expect rate cuts by the Bank of England this year, albeit somewhat later, with the UK economy struggling.

Futures markets price in a high chance of additional modest easing by the Federal Reserve this year, though again later than prior to the conflict, amid persistent weakness in US employment data. We concur.

An alternative “oil shock” scenario from S&P Global Energy would result in much weaker economic outcomes than we are currently forecasting.

The key assumptions feeding into that scenario include the Strait of Hormuz effectively remaining closed through April and difficulties in restarting field and refinery production, leading to scarcity of supply and soaring prices. The monthly average price of Dated Brent is assumed to peak at $200/b during the second quarter of 2026 and remains above $100/b at the end of the year.

Given the combination of soaring consumer price inflation rates, much tighter monetary policies and major corrections in asset prices, output losses versus baseline would be very large across all major economies in this scenario. Even a less pronounced energy shock would probably tip the recent low growth economies, such as Japan, Germany and the UK, into recession. 

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.