The global economy is at an inflection point. We see growth slowing unevenly and fiscal policy becoming a more visible constraint. Meanwhile, inflation risks are rising as geopolitical shocks increasingly affect energy prices, food and fertiliser costs, and shipping routes. Still, artificial intelligence (AI) remains a strong earnings driver across regions and, increasingly, across sectors.
The next six months will test the endurance of our central scenario, which assumes a fragile de-escalation of the Middle East crisis and a reopening of the Strait of Hormuz, even if a stable deal remains uncertain. In this scenario, energy risks will be repriced, a recession avoided, and central banks will not embark on a full hiking cycle. But the scale of uncertainty means we also explore the investment implications of alternative scenarios. A more adverse one incorporates the risks of a macro/financial shock and global recession. Meanwhile, a more benign alternative assumes a full normalisation of the Strait that paves the way for monetary easing. Four key themes will determine whether markets pass the endurance test:
- the global economy’s resilience to the energy shock
- the credibility of policymaking in a world of higher debt and constrained central banks
- the political implications of the US mid-term elections as markets start to price the next phase of fiscal and regulatory choices
- the continued broadening of the AI supercycle.
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