The global economic outlook is shaped by higher energy prices, elevated interest rates, and increased inflation. Financial conditions, however, may not be as tight as they seem, bolstered by the strong performance of stock markets and stable exchange rates. Investment driven by the artificial intelligence sector is also helping to mitigate the economic impact of ongoing conflicts in the Middle East.
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Currently, the conflict in the Middle East significantly influences global economic conditions. While economic activity remains robust, inflationary pressures are primarily concentrated in the energy sector, with no substantial indirect effects on other prices. The uncertainty surrounding the conflict has prompted central banks to begin implementing interest rate hikes.
Forecasts indicate that energy prices will remain demanding. Oil and gas futures suggest a gradual easing, with Brent crude expected to range between $80 and $90 per barrel in the final quarter of 2026, and between $75 and $80 in 2027. TTF gas prices are projected to remain slightly below €70 for the rest of 2026, before decreasing to around €40 in 2027. However, risks persist, particularly if the ongoing conflict disrupts supply chains, as has been seen with the closure of the Strait of Hormuz.
In light of these energy price projections, inflation rates in economies like the US and euro area are anticipated to exceed 3.5%, possibly nearing 4%. However, a drop in inflation to approximately 2.5% is expected by spring 2027, contingent on whether energy inflation spreads to other goods. Currently, indirect effects are limited, due to stringent monetary policies and subdued fiscal measures.
The escalation of inflationary risks linked to the protracted conflict has prompted central banks, including the Federal Reserve and the European Central Bank, to raise interest rates. Although core price pressures have remained stable, sustained disruptions could lead to broader inflation. Predictably, the Fed and ECB are expected to lift rates to between 4.00%-4.25% and 3.00%, respectively, but an improvement in inflation trends might allow for quicker monetary easing in 2027.
Despite the challenges posed by higher energy prices, interest rates, and inflation, the resilience of economic activity offers a promising outlook. The euro area's GDP grew by just over 1% in the first half of 2026, whereas the US saw growth just under 2%. Additionally, China's GDP has remained within the targeted range of 4.5%-5.0%. Recent data indicates a recovery in sentiment, suggesting continuous economic growth supported by a strong labor market.
Regional disparities exist in this outlook. The euro area, more dependent on fossil fuel imports, faces heightened energy cost pressures but benefits from increased investment and defense spending. Meanwhile, the US's greater energy autonomy lessens the immediate impact of energy disruptions, aided by growth in the AI sector. Conversely, China's economy is marked by real estate sector weaknesses and domestic demand concerns, counterbalanced by robust oil inventories and higher-value exports.
This complex environment for the economy necessitates cautious optimism. Ongoing geopolitical tensions, particularly in the Middle East, will continue to shape economic trajectories. Additionally, the AI investment cycle poses a double-edged sword, with potential for both growth and financial instability. Moreover, the challenges of high public debt alongside rising interest rates warrant careful monitoring by investors, especially in countries like France and the US. Trade tensions also linger, with US tariffs remaining relatively stable, although aimed at an average tariff around 10% on global trade.