Growth Faces an Energy Test

Summary

Seth Carpenter discusses the mid-year global outlook, focusing on the interplay between AI investment, US consumer spending, and an energy shock from oil. The baseline forecast shows moderate global growth, but elevated oil prices pose upside inflation risks and downside growth risks, with central banks responding divergently. The US economy is supported by AI capex and consumer spending, while Europe is most exposed to the energy shock.

• Global real GDP growth forecast: 3.2% in 2026, 3.4% in 2027, slowing from 3.5% in 2025.
• Baseline assumes crude returns to $90/barrel by end-2026 and declines in 2027.
• Risk scenario: oil surges through $150/barrel if shipments don't normalize, potentially causing recession.
• Europe is most exposed to the energy shock; China least exposed; US in between.
• US growth driven by AI-related capital spending and top-end consumer spending.
• Fed expected on hold through 2026, then two cuts in first half of 2027.
• ECB expected to hike twice in 2026, then reverse in 2027.
• BOJ likely to continue gradual hiking path.