Global Economic Outlook: July 2026

Economic forecasts have shifted midway through 2026 mainly because commodity price assumptions have changed, especially for crude oil following the mid-June US-Iran agreement to reopen the Strait of Hormuz. Lower projected oil and materials prices have led S&P Global Market Intelligence to reduce its 2026–27 inflation forecasts and modestly lift real GDP growth expectations for net oil-importing economies.

These forecast changes remain cautious because renewed Middle East hostilities, rebounding oil prices, food inflation risks and weaker second-quarter growth in major economies continue to create significant uncertainty. In short, the outlook has improved at the margin because of lower commodity prices, but it remains fragile because the same geopolitical and supply-side risks that drove earlier shocks have not gone away.

• The 2026 outlook remains fragile, with geopolitical shocks, unstable economic “anchors” and strained public finances continuing to weigh on confidence.

• Several core predictions are broadly on track, including resilient US conditions; weaker growth in Western Europe, mainland China and India; upward pressure on long-term rates; and monetary policy divergence.

• Lower commodity price assumptions have improved the inflation and growth outlook, particularly for net oil-importing economies, although renewed Middle East hostilities and volatile oil prices keep risks elevated.

• Central bank policy remains highly uncertain, with markets pricing possible rate rises while S&P Global’s base case assumes no renewed tightening by the Fed or ECB unless inflation risks intensify.

Why do shaky economic foundations remain a core theme?

Having recently passed the midpoint of the year, 2026’s core theme of shaky economic foundations remains apt.

This theme was prominent in our thinking for three key reasons. First, the potential for geopolitical events to affect economic conditions. This year’s conflict in the Middle East and all of its ramifications followed hot on the heels of last year’s seismic shift in US trade policy.

Second, and related, some prior economic “anchors” — including low inflation, low and stable interest rates and frictionless trade — have become more unstable and uncertain.

Third, we also wanted to highlight some underlying vulnerabilities that pose a threat to economic prospects, one of which is the parlous state of the public finances in many major economies. Adverse supply shocks add to upward pressure on sovereign yields, constraining governments’ ability to mitigate their negative effects on growth, as we have seen recently.

How have 2026 predictions fared so far?

Several of our top ten predictions for 2026 have been borne out over the first half of the year. These include:

• Solid US economic conditions
• Western European growth underperformance
• Weaker expansions in mainland China and India
• Upward pressure on long-term interest rates 
• Monetary policy divergence

The jury is still out on some others, including US dollar depreciation and rebalancing in mainland China. The underlying rationale for both still applies.

The conflict in the Middle East blew two related predictions off course — lower crude oil prices and consumer price inflation rates. Click here for a detailed account of how our economic themes and predictions for 2026 are faring.

What is the impact of lower commodity prices on forecasts?

The main influence on July’s monthly forecast updates is lower commodity price assumptions. The resumption of hostilities in the Middle East is a reminder of the high uncertainty surrounding the outlook.

For crude oil, this month’s changes are substantial, reflecting the initial sharp decline in prices following the US-Iran agreement to reopen the Strait of Hormuz. S&P Global Energy’s current base case incorporates end-2026 and end-2027 Dated Brent prices of US$87 and US$74 per barrel (/b), respectively. Annual average prices in both years are around 20% below what we had assumed in June.

The near-term projections for S&P Global’s Materials Price Index (MPI) have also been lowered this month. The net result is lower consumer price inflation forecasts for this year and next and a somewhat more positive assessment of growth prospects. 

Have inflation forecasts been reduced?

S&P Global Market Intelligence's consumer price inflation forecasts for 2026-27 have been reduced, although they remain above February’s pre-conflict projections.

The downward revisions are consistent with the lower commodity price assumptions highlighted above. S&P Global’s Purchasing Managers Indexes (PMIs®) have also showed a moderation in price pressures recently. Following six straight increases, the global manufacturing input price index declined in June, with the output price equivalent falling for a second consecutive month. Global services price indexes showed a similar pattern.

With crude oil prices having risen markedly in recent days, the inflation worries for central banks are by no means over. Other potential areas of concern include higher agricultural prices and food inflation due to a mix of factors including supply chain disruptions and El Niño. 

How have GDP growth forecasts changed?

We have lifted 2026’s annual real GDP growth forecasts for net oil importing economies, although they generally remain well below February’s pre-war projections.

The revisions are consistent with July’s lower commodity price assumptions and the latest signals from our PMI data. Regarding the latter, composite output indexes — bellwethers for real GDP growth momentum — generally improved in June. This included in the eurozone, hitherto a standout underperformer.

The surveys of future activity also largely rose in June for the first time in several months, albeit from weak levels. The extent to which the resumption of the conflict in the Middle East and related rebound in oil prices will undermine June’s more positive PMI signals is uncertain. This month’s “flash” PMI figures will be released on July 24. 

What is the anticipated Q2 slowdown in major economies?

We continue to forecast that real GDP growth rates in most major economies will have weakened in the second quarter. This was the case in mainland China, with the 4.3% year-over-year increase the weakest since early 2023 and undershooting the official target range (along with our estimate, with the release too late to be incorporated into our July forecast).

Second quarter real GDP releases in other major economies will follow from late July and our tracking estimates for the US continue to point to a marked slowdown there. Our nowcast for the eurozone suggests that it will buck the trend, with a return to (meager) growth following a first quarter contraction, although extreme volatility in Irish data complicates the picture.

What is causing volatility in policy rate expectations?

Market expectations for policy rates remain volatile and highly sensitive to developments in the Middle East.

Prior to June’s softer-than-expected US consumer price inflation (CPI) data, futures markets were fully pricing in a 25 basis point policy rate rise as soon as October, followed by another hike in early 2027, supporting the US dollar. We are unconvinced.

Those expectations were subsequently tempered by the CPI data, although current market pricing still implies a 70% chance of a 25 basis point rate rise by October.

Our base case remains for unchanged policy rates until mid-2027, followed by a resumption of gradual easing. Consistent with this, we do not expect the recent strength of the US dollar to be sustained. Our model-based forecast continues to point to a resumption of the depreciating trend evident since early 2025. That also reflects some other fundamental drivers including its still elevated level in trade-weighted terms and US external imbalances.

What are the European Central Bank rate hike expectations?

Futures markets have also moved to price back in around 50 basis points of rate rises by the European Central Bank by early next year. Weak economic conditions, recent soft inflation data and a low risk of second-round effects all lean against, reflected in our updated forecast of no further increases in eurozone policy rates.

That said, events in the Middle East and the impact on oil prices will remain the key swing factor for monetary policy globally and given the highly uncertain environment at present, more prolonged and widespread tightening cannot be ruled out.

What are the main risks to the global economy in 2026?

The analysis identifies three key risks creating "shaky economic foundations":

• the potential for geopolitical events like the Middle East conflict to affect economic conditions
• the instability of former economic "anchors" such as low inflation and stable interest rates
• underlying vulnerabilities like the precarious state of public finances in many major economies.

What is the latest forecast for crude oil prices?

S&P Global Energy’s current base case, incorporated in the July forecast, projects Dated Brent prices at US$87 per barrel by the end of 2026 and US$74 per barrel by the end of 2027. This represents an annual average around 20% below the assumptions from June.

What is the outlook for US interest rates?

While market futures have priced in a high probability of a rate hike by October, the analysis maintains a base case for unchanged US policy rates until mid-2027. After this period, a resumption of gradual easing is anticipated.

How are different regions performing economically?

The analysis confirms solid economic conditions in the US, contrasted by growth underperformance in Western Europe. Weaker expansions are noted in mainland China and India. The eurozone is forecast to return to growth in the second quarter, potentially bucking the weakening trend seen in other major economies like the US and mainland China.

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.