The 2022 energy crisis clearly highlighted the issue of electricity prices in Europe – and, more broadly, the issue of energy prices. As a result, European manufacturers’ competitiveness has been severely undermined when compared with the United States and China. By reigniting tensions over electricity prices, the conflict that began in the Middle East in late February 2026 further underscores the continent’s vulnerability to fossil fuel imports, despite the expansion of renewable energy. Faced with an environment of potential sharp and sudden price rises, European governments do not have the same room for manoeuvre.
In this new podcast, we review the macroeconomic outlook for advanced economies. Despite a series of geopolitical and energy shocks, the global economy continues to show unexpected resilience.
Seven months after the start of the war in the Middle East, which has led to a sharp rise in oil prices, sub-Saharan Africa is holding up well overall. The deterioration in external accounts and the rise in inflation are more contained than in 2022, during the last oil shock. However, this resilience is fragile and is eroding as the conflict drags on. Furthermore, an exceptional El Niño event could significantly worsen the macroeconomic environment in 2027.
The global economy’s unexpected resilience might have invited the self-congratulation that is a trademark of international official meetings. But policymakers gathered in Bangkok for the 2026 IMF Annual Meetings were wearily aware that “continued resilience cannot be taken for granted”, as noted in the prologue to the closing Chair’s Statement to the International Monetary and Financial Committee meeting. Growth forecasts remain in line with those made a year ago, when interest rates were much lower and no energy shock was in the cards, and even with those made in April, when a short shock was the base case
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Rising energy prices are pushing inflation higher in Europe and the United States, while energy’s contribution is slightly negative in Japan. Over recent months (3m/3m), core indices have been firming in the euro area and Japan: a signal to watch. In Europe and Japan, pressure on producer prices is building. The risk of the energy shock spilling over to other CPI items is increasing. Markets (swaps) are pricing this rise in inflation into short-term measures. Long-term expectations (5y5y) are rising in Japan and the UK.
The September PMI surveys confirm that growth in the Eurozone is getting stronger, boosted in particular by new export orders, which are still rising. Sectors that were already performing well – technology and capital goods (including for defence) – are continuing to grow, while those that had been struggling until now – aeronautics, consumer goods and financial services – are seeing their production indices recover. This strong performance is particularly noteworthy, given that it has not yet been undermined by higher inflation.
In 2026, the European economy will not perform better than it did in 2025. At 1.4% (IMF estimate), its growth remains half as fast as in the United States. Still, there are more and more signs that Europe is regaining strength. The energy crisis, which has now been ongoing for eight months, would have caused it to halt in other times. Beneath an apparent sluggish activity, productivity is rebounding, while many sectors are picking up steam.
GDP growth is proving more resilient to shocks than anticipated. Second-quarter figures confirm this trend: despite rising oil prices, growth remains supported by various reflationary forces. At the heart of this cycle lies a clear driver: Artificial Intelligence (AI). Consequently, major global economies are ramping up investment in capital goods.
It was true at midyear, and it remains true this fall: the global economy continues to show remarkable resilience, with tailwinds continuing to prevail in their tug-of-war with headwinds.We believe these tailwinds will persist and ultimately win, leading to an acceleration in growth in 2027, particularly in the largest advanced economies. But there are some downsides to the situation, the tug-of-war remains tough, and risks are numerous. Here is a brief overview of our recently updated economic forecasts and their key messages.
Overall, based on data available through September 2026, economic activity continues to show resilience. The high levels of business climate surveys illustrate this well. Household confidence, however, is more vulnerable and sensitive to energy price pressures. Financing conditions in emerging economies also continue to hold up well against the shock (much better than in 2022) as well as against the tensions in DM bond markets.
The overall picture from the confidence surveys available for September is globally positive. According to the PMIs, the business climate in services has indeed seen a clear improvement, and that in the manufacturing sector remains comfortably in expansion territory for the 8th month in a row. However, household confidence has recorded its first decline in 5 months, likely driven by rising inflation and concerns over purchasing power.
US macroeconomic performance has remained solid since the onset of the shock, as illustrated in particular by Q2 growth of +3.8% and +9% (annualized quarterly rate) in consumer spending and private nonresidential investment, respectively. In the manufacturing sector, business sentiment has gained momentum despite the shock, while the impact of this shock on the services sector has remained very limited. The immediate reaction of consumer confidence was, however, more negative before beginning to improve, which was nevertheless interrupted in August.
The average CPI inflation rate across the fifteen leading emerging economies stabilised at 4.3% year-on-year in August. The inflationary impact remains weaker than in 2022, due in particular to reduced spillover effects on agricultural and food prices. Manufacturers’ views on the trend in input and finished product prices have returned to their pre-conflict levels.
Oil and gas markets rose in September, primarily due to the resurgence of significant disruptions to hydrocarbon traffic in the Gulf. Red Sea flows have been constrained, while the substantial oil exports through the Strait of Hormuz remains fragile. In variation, the current rise in oil and gas prices exceeds the one recorded during the 2022 crisis, although in value, gas prices remain significantly lower than in 2022.
The 2027 budget, adopted by the French Council of Ministers today, calls for a reduction in France’s fiscal deficit to 5% of GDP in 2027 (down from 5.4% in 2026). This is a first step towards the multi-year fiscal consolidation needed to stabilise the public debt-to-GDP ratio. This ratio is expected to rise further in 2027 and until the deficit is reduced to 3% of GDP. Furthermore, given the increase in some expenditures (+0.6 pp of GDP for debt service and defence spending), the projected fiscal effort amounts to 1 pp. Nearly one-third of this effort would come from higher compulsory levies, and two-thirds from curbing government and social spending.
In Europe, the possibility of a US ban on diesel exports has heightened concerns about price trends for this widely used fuel, which has already risen significantly since the outbreak of the conflict in Iran. It has become a major political issue on both sides of the Atlantic in the run-up to decisive elections.
The 2026–2027 El Niño climate event is expected to be one of the most intense in the last fifty years, with sea-surface-temperature anomalies potentially exceeding +3°C in the equatorial Pacific. According to the World Meteorological Organisation (WMO), El Niño is expected to persist until February 2027, with asymmetrical effects, as South-East Asia and northern Latin America will experience droughts, while southern Brazil and Argentina could see heavy rainfall. Above all, El Niño is compounding the effects of global warming and exacerbating existing extreme-weather events (droughts, floods and heatwaves). The economic effects of this climate shock mainly play out through three avenues: agricultural commodity prices, energy and logistics.
In 2026, the government once again failed to stabilise its public debt-to-GDP ratio due to a significant fiscal deficit and lower-than-usual growth. According to our analysis, this underperformance is due to exceptional factors. Structurally, France can still generate growth that will help the public debt ratio to stabilise, provided that its budget deficit is brought down to approximately 3% of GDP
