By José Ramón Díez
Now that the three months of conflict in the Middle East are behind us, the effects of the supply shock caused by rising energy prices will gradually become apparent in the inflation and growth data. The combination of uncertainty and resilience that has characterised the global economy’s performance in recent times creates a fragile balance, particularly whilst geopolitical risk remains at very high levels.
This situation calls for maximum flexibility, both in investment strategies and in economic policy responses. It also necessitates recalibrating economic scenarios to a new reality, with much greater volatility in economic and financial variables. All of this reflects the structural reorganisation of the global economy, which seeks broader economic efficiency that encompasses security and resilience.
For the time being, of the three transmission channels for the supply shock, the energy channel is the one that has been activated most intensely, as shown by the generalised rise in inflation, which is already eroding households’ purchasing power. This, combined with the moderate tightening of financial conditions (far less severe than that which occurred following the war in Ukraine), will dampen private consumption in the middle months of the year and reduce potential macroeconomic imbalances that may be caused by the gap that has opened up between supply and demand.
In the absence of further negative surprises in energy prices, the net effect on growth would be moderate and concentrated in the middle quarters of the year, taking into account factors supporting economic activity such as the healthy state of labour markets, high household savings rates, low levels of private sector debt and the capacity of fiscal policy to offset some of the negative effects of the supply shock.
All of this, however, will depend on a rapid reopening of the Strait of Hormuz, as the mismatch between supply and demand in energy markets is being covered by a daily reduction in stocks which, should the crisis persist, could lead to problems with physical delivery in the summer months in some market segments.
Putting figures to the scenario, we have revised our forecast for global economic growth downwards, from 3.3% to 3% in 2026, with growth cuts for the Eurozone, from 1.3% to 0.7% (from 2.4% to 2.1% in the case of Spain) and for the United States, from 2.6% to 2.1%.
To update the forecasts, we have used average oil prices for 2026 ($90 per barrel) and 2027 ($80 per barrel), in line with what the futures markets are currently pricing in. This would imply a gradual return to normality in energy markets over the coming quarters, albeit with equilibrium crude oil prices almost $20 higher than pre-conflict levels and a smaller buffer of stocks.
If these assumptions hold true, growth could return to its potential range by the end of 2026 andinflation could resume its path towards central banks’ targets in 2027, following this year’s significant spike (3.1% in the eurozone and 3.5% in the United States).
For the time being, whilst awaiting the Q2 growth figures, some signs of a slowdown are visible. However, these are also being partially offset by pre-emptive buying in response to the risk of disruptions and future price rises.
The most valuable information comes from the inflation data, where, in Europe, the rise in the year-on-year rate to 3.2% has been accompanied by a rise in core inflation to 2.5%, largely explained by the acceleration of inflation in services (up 0.5 percentage points to 3.5%), the highest level in over a year in Europe.
So it is now the turn of the central banks and, in keeping with the old adage that prevention is better than cure, we will see moderate rises in interest rates in the coming months, to nip the risks of second-round effects and their potential spillover into inflation expectations in the bud. In Europe, in a scenario of significant (but not severe) direct inflationary effects and limited spillover to the rest of the basket, a total rise of 50 basis points could be sufficient, starting in June with 25 basis points. So, by the time you read this, official rates in Europe will likely already have reached 2.25%.
The situation is more complicated for the Fed, not only because of the complications introduced by a dual mandate (focused on inflation and employment) at a time of a supply shock, but also because of the lack of clarity regarding the strategic shift sought by the new chairman (Kevin Warsh), when it is well known that, in times of turmoil, it is unwise to make changes. Furthermore, monetary and exchange rate credibility usually takes a long time to establish, but can be lost very quickly.
