S&P Global Ratings
Economic Research
Our economists are responsible for developing the macroeconomic forecasts and risk scenarios used by S&P Global Ratings' analysts during the ratings process, as well as leading key cross-sector and cross-divisional research projects.
Global Economic Outlook Q2 2026: Middle East War Dents The Forecast
The Middle East war has unleashed the largest energy supply shock on record, significantly weakening the 2026 global macro outlook by erasing previously expected growth upside. Higher energy prices are pushing inflation materially higher, tightening financial conditions, and prompting central banks to pause or reverse easing plans.
While the baseline assumes the conflict de‑escalates by April and conditions gradually normalize, risks are firmly skewed to the downside, with a prolonged disruption potentially triggering a sharp market repricing and a broad global slowdown. Over the longer term, the shock is likely to accelerate shifts toward energy security, reduced globalization, and structurally higher costs for the global economy.
North America
Economic Outlook U.S. Q2 2026: Curb Your Enthusiasm
U.S. economic momentum has cooled as the escalating Middle East conflict introduces a negative, supply‑driven energy shock that is weighing on growth and complicating the inflation outlook. S&P Global Ratings now forecasts U.S. GDP growth of 2.2% in 2026, easing to an average of 1.9% from 2027–2029. While the U.S. economy remains resilient, rising oil prices are expected to push headline inflation temporarily toward 4%, eroding real incomes and dampening demand. Core inflation is projected to rise more moderately, reflecting expectations that the energy disruption will be short‑lived.
The labor market has softened but remains broadly consistent with trend growth, with unemployment expected to drift higher as output slows. Higher energy costs pose risks across consumption, housing, manufacturing, and business investment, particularly if supply chain disruptions persist or financial conditions tighten further. As a result, recession risk over the next 12 months has increased to around 30%, though the baseline view remains a “growth scare” rather than an imminent downturn.
For the Federal Reserve, the challenge is balancing inflation risks against slowing activity. S&P Global Ratings expects one 25‑basis‑point rate cut late in 2026, followed by additional easing in 2027, assuming energy‑driven inflation proves temporary. However, forecast confidence is unusually low, with downside risks closely tied to the duration and severity of the conflict.
EMEA
Economic Outlook Europe Q2 2026: Global Shock Leaves Recovery Uncertain
Europe’s economic recovery has been unsettled by the Middle East conflict, as higher oil and gas prices push inflation up and weaken near‑term growth. S&P Global Ratings now expects GDP growth of around 1% in both the eurozone and the U.K. in 2026, with inflation running higher than previously forecast. Oil prices are likely to lift consumer inflation quickly this year, while gas prices pose a more persistent risk, increasing the chances of second‑round effects into 2027.
Some underlying supports remain, including Germany’s on‑schedule fiscal stimulus, resilient business investment, and continued digital transformation. However, rising energy costs and renewed inflation pressures have complicated monetary policy, leading S&P Global Ratings to expect the ECB and Bank of England to raise rates as early as the second quarter of 2026. With the outlook highly sensitive to the duration of the energy shock, uncertainty is elevated and downside risks dominate if prices remain higher for longer.
Asia-Pacific
Economic Outlook Asia-Pacific Q2 2026: Geopolitical Strife Stalls The Momentum
Asia‑Pacific growth remains relatively resilient, but momentum has slowed as the Middle East conflict drives up energy prices and adds new uncertainty to trade and financial conditions. S&P Global Ratings expects China’s growth to ease in 2026 as weak domestic demand, a prolonged property downturn, and higher energy costs offset strong exports and temporary U.S. tariff relief. Across the region, higher oil and gas prices are lifting inflation, eroding purchasing power, and weighing most heavily on net energy‑importing economies.
Tech‑oriented economies continue to outperform, supported by strong AI‑related demand and tariff exemptions for key electronics, while domestic demand has generally held up thanks to resilient labor markets and earlier policy support. However, monetary policy flexibility is limited, with rising inflation and currency pressures keeping central banks cautious. If energy market disruptions persist or U.S. tariffs rise again following ongoing trade reviews, downside risks to Asia‑Pacific growth would increase materially.
Emerging Markets
Economic Outlook Emerging Markets Q2 2026: Inflation Risks Reemerge
Emerging markets entered 2026 with stronger‑than‑expected momentum, but the Middle East conflict has reintroduced inflation and downside growth risks. S&P Global Ratings’ baseline assumes the energy shock is temporary, with oil prices moderating later this year, resulting in only modest GDP growth downgrades for most EMs. Even so, higher energy prices are already lifting inflation, widening credit spreads, and pressuring exchange rates, particularly for net energy‑importing economies, many of which are in Asia.
If the conflict proves longer or more severe, inflation could rise sharply, forcing central banks to pause or reverse rate‑cutting cycles. Net energy importers and economies directly exposed to the conflict would be most vulnerable, while fiscal balances could weaken as governments attempt to cushion households from higher fuel costs. Although AI‑related exports and resilient domestic demand remain key supports, uncertainty is high and risks to the EM outlook are firmly skewed to the downside.
Climate Economics
Net-Zero Transition Stutters As Geoeconomic Risks Increase
Geoeconomic security concerns are reshaping the transition to net-zero emissions. Immediate risks take precedence over long-term sustainability goals, even though global emissions keep rising.
Weaker climate policy commitments and trade tariffs will slow progress toward net zero, with less public funding available to derisk net-zero technologies and emerging markets. This reduces private sector incentives to invest in clean technologies.
Asia-Pacific (APAC)--particularly China--and the EU will continue to lead the development and adoption of clean technologies. Yet diverging industrial and trade policies will likely continue to create tensions.