Global Economic Outlook: June 2026

The effects of high commodity prices will persist despite the recent peace deal. Producer price inflation rates jumped in March and April, and the pricing surveys from S&P Global’s Purchasing Managers Index (PMI®) data continue to point to further substantial increases in the subsequent months. Our in-house projections for non-energy commodity prices have also been raised compared to May’s forecast round, with the S&P Global Materials Price Index (MPI) excluding energy forecast to rise by over 20% in 2026.

Supply disruptions have been pushing up prices across a range of materials, including petrochemicals and copper, while El Niño is another potential source of price pressure further down the line. Our national producer and consumer price inflation forecasts again show significant variations in June due to differences in sensitivities to higher commodity prices and divergent policy responses.

US policy rate expectations have been volatile. While the new chair of the US Federal Reserve, Kevin Warsh, has made comments alluding to the possibility of lower policy rates, recent rises in inflation and solid employment reports have contributed to a shift in futures market pricing toward tightening. A 25-basis-point rate hike by early 2027 was almost fully priced in prior to the Middle East agreement.

As things stand, the implied probability for January 2027 has fallen to about 60%. Our base case remains for no change in policy rates in the US this year, but the projected fall to the estimated neutral range of the federal funds rate was pushed back to 2028 in our June update. The communication that follows the conclusion of the Fed’s upcoming policy meeting on June 17 will be a key influence on policy rate expectations. 

Monetary policy tightening is becoming more widespread. The 25-basis-point rate rise from the European Central Bank on June 11, the first among the G7 economies, matched our prediction. With inflationary concerns accompanied by a deteriorating growth outlook, we continue to expect only one additional quarter-point hike from the ECB this year. This broadly matches current futures market expectations. The Bank of Japan also announced a 25-basis-point rate hike this month. 

The outlook for emerging economies remains mixed. Some of the central banks that ran defensive monetary policies through 2025 are still expected to continue their gradual easing cycles, including in Brazil and Russia. For many others, however, inflationary concerns are mounting. This includes the Reserve Bank of India: We now expect it to deliver a series of rate hikes starting in the third quarter, contributing to a less positive assessment of growth prospects. 

Divergent monetary policy prospects are contributing to variations in our currency forecasts, although the general direction for some of the larger emerging economies and most advanced economies remains toward gains against the US dollar. 

Weaker-than-expected real GDP outcomes in the first quarter of 2026 have led to downward revisions to our full-year growth forecasts for some major economies. This is particularly the case for Canada, but it also applies, to a lesser extent, to the eurozone and Russia.

There have been some minor upward adjustments to projected 2026 growth rates considering recent data, including for the US, South Korea and the UK, although we still expect real GDP contractions in midyear in the latter.

Netting out the various national changes, our global real GDP growth forecast for 2026 remains unchanged at 2.2% in June’s update, still below the consensus. Sustained lower-than-expected oil prices are an upside risk.

As previously highlighted, GDP releases around the turn of the year can distort the evolution of annual growth rates, so the projected trajectory of quarter-over-quarter growth rates is a much more reliable guide to how economic conditions are expected to evolve. For most oil-importing economies, a period of near-term economic weakness remains our expectation.

The agreement to end the Middle East conflict has boosted risk appetite in global markets. Following a difficult first half of June, major equity indexes have rebounded on the news, hitting new record highs in some cases. Time will tell whether the wobble in tech stocks was merely a blip driven by technical factors (e.g., positioning) or the beginning of a more fundamental reappraisal of the outlook.

The worries about a potential correction are unlikely to disappear for a variety of reasons, including elevated valuations, record-high market capitalization versus GDP, exceptionally high market concentration (which is likely to be exacerbated by three huge IPOs), and potential over-capacity. While a major correction is not our base case, should one occur, it would be a game changer for the economic and financial outlook. 

The pressure on sovereign bond markets has also eased, with 10-year sovereign yields in most major markets below their recent highs, albeit still well above their pre-conflict levels. Consistent with our expectation that the next move in US policy rates will be downward, we expect somewhat lower 10-year US Treasury yields.

In many other markets, however, rising inflation, upward pressure on policy rates, and the fiscal cost of mitigating the energy shock point to renewed near-term upward pressure on yields. The implied shift in yield differentials is consistent with the expected resumption of US dollar depreciation.

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.