Global Economic Overview – April 2026

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Global

The war in Iran is now approaching the eight-week mark. Whilst the conflict, for the moment, has moved from military action to diplomacy there is still no end in sight to the closure of the Strait of Hormuz, the critical issue for the global economy. President Trump’s decision to extend the ceasefire for an unspecified period to allow Iran to come forward with a ‘unified proposal’ is positive in that the situation is not re-escalating. But negative for physical energy supplies is the continued US naval blockade and the corresponding Iranian closure. Maritime traffic therefore remains a trickle with an average of just 9 ships transiting the Strait daily in April compared to 96 in 2025. Tanker traffic was just 7% of 2025 levels.

Chart 1: Flows through the Strait of Hormuz remain a fraction of normal levels



Source: Macrobond, IMF Chokepoint Transit Calls & Trade data

These supply constraints continue to underpin energy prices. Even so, hopes of an end to the war have seen prices ease with Brent currently trading at $103/bbl (having peaked at $119) and UK natural gas at 112p/therm. That said, worsening supply conditions in distillates have kept their prices under greater pressure: diesel is 102% higher YTD and NWE jet fuel 122%. And fertiliser, of which 30% of global supply comes from the Gulf, is yet to ease, with spot urea at its high. Whilst the general fall in energy prices is positive, it will only soften the inflation impact, not negate it. On our estimates inflation will see an average 1.4%pt uplift relative to our pre-conflict base case at the peak in the UK, EU21, US. 

Chart 2: Commodity price performance (% change year-to-date): off the peak but still up sharply 



# NWE- NorthWest European Jet fuel                                                                        Source: Macrobond, Bloomberg

On our baseline view that military action is now over, it is supply and how quickly Gulf exports return to normal that is the key question. The reopening of the Strait is therefore critical, as is the resumption of energy output, which itself takes time: Gulf crude oil output was down 8.5mb/d in March m-o-m, a reduction in global supply of 9%. Broader supply issues are only likely to intensify if the Strait does not open soon, with distillates and in particular jet fuel a focus. The European market is an area of concern with 75% of its 500k/d jet fuel imports met from the Middle East. Increased US supply offers some offset with jet fuel exports up 30% from pre-war levels. But whether that can entirely replace Gulf exports remains to be seen. The IEA, warned that if only 50% of Middle East supply is replaced, inventory will reach… 

Chart 3: Inventory cover across distillates: far from ample in some cases 



*EU21 calculated from data available                             Source: JODI (Joint Organizations Data Initiative), Investec 

…levels that could see shortages as soon as June. There is also the domino effect that the disruption to crude supply will impact refining capacity itself. Ultimately if supply is not resumed the market will need to rebalance at higher prices. In response governments are attempting to insulate their economies to the energy shock with measures to reduce demand and lessen the price impact: 179 policies globally have been enacted so far. Nonetheless we do expect a hit to global growth but given that developments since our March ‘Global’ have largely fallen within the bounds of our existing baseline, we have made few changes to the outlook with global growth estimated at 3.0% (2026) and 3.1% (2027) unchanged from last month. These figures are not dissimilar to the IMF’s latest forecasts of 3.1% and 3.2% (Chart 4). 

Chart 4:  Investec and IMF Global growth forecasts: a relatively benign set of baseline forecasts



Source: Investec, IMF World Economic Outlook (April 2026)

However there are clearly risks to this view given the uncertainty over White House policy and the ability to reach a formal peace deal between the US/Israel and Iran. Despite the extended ceasefire we cannot rule out the possibility that military action resumes. That would see energy and other supply issues exacerbated, resulting in a greater inflation shock, tighter monetary policy and a larger downturn in activity. As a point of reference the IMF’s latest WEO contained a scenario analysis of the conflict. In its ‘severe’ scenario, in which oil prices average $110/b in 2026, global inflation is projected to rise to 5.8% and 2026 GDP to stand at 2%, very close to what it deems a global recession*.

Chart 5: IMF World Economic Outlook (WEO) Middle East stress scenarios: a range of paths



* IMF defines a global recession as ‘Global growth below 2%’                                      Source:  IMF April 2026 WEO

Despite the risks, equity markets are riding high, with the S&P 500 and NASDAQ hitting all-time highs last week, recouping March’s losses. But with energy prices still elevated and the conflict far from a firm conclusion, the move looks somewhat out of kilter, particularly considering that 10y USTs have only clawed back half their losses since the war. Adding to the optimism in equities though is a renewed enthusiasm for AI: Q1 corporate earnings results were strong; particularly in the tech sector. Factset reports a 'Mag 7' earnings growth rate of 22.8% in Q1 compared to 13.2% for the S&P. But with the situation in the Middle East remaining in flux, the rally in equity markets may not be sustained. 

Chart 6: Is the rebound in equity markets too optimistic?



Source: Macrobond, Investec Economics

United States

Polling suggests that US citizens broadly disapprove of US military action in Iran. Of course this varies by political leaning – the ‘MAGA’ base for example, are much more in favour of the conflict. However, when thinking about the midterms, it is the opinion of swing voters that matter. Polling suggests that President Trump is quickly losing favour among Hispanic/Latino voters, a key group that helped deliver Trump the Presidency the 2nd time around. Recently this trend has been exacerbated by the jump in living costs, thanks to the conflict in Iran. Indeed, average gasoline prices are now over $4/gallon, with Energy Secretary Chris Wright revealing that it might not be until 2027 before they fall back below $3 (which Trump has disputed).

Chart 7: US consumers are feeling the consequences or the Iran conflict at the pump



Source: Investec Economics, Macrobond, EIA

One offset to personal finances from the rise in gasoline prices in the short-term is that tax refunds are particularly high this year. However this is just a one-off payment and will vary by household. As such, consumption growth is set to slow over the remainder of the year. The hit to economic growth though from the Iran conflict is likely to be smaller in the US than in Europe, given that household energy bills are more protected from rising global energy prices. Whereas oil related prices in the US are globally determined, the gas market is largely decoupled from global markets due to LNG export capacity being fairly limited. As such domestic, not international, factors are the key driver of price movements. 

Chart 8: US gas markets (Henry Hub) are largely decoupled from global markets

 



Source: Investec Economics, Macrobond

In all, we are forecasting GDP growth of 2.1% this year and 1.9% next, only a small downgrade relative to last month’s Global, where we made more substantial downward revisions on account of the Iran conflict. Inflation, meanwhile, is likely to head higher, but not by enough to convince the majority of the FOMC to vote for a hike in rates. Justifying that is that policy is already restrictive, and that the rise in gasoline prices should be just a one-time shock that the Fed could look through. Moreover, the Fed has a dual mandate, and higher energy prices threaten to increase unemployment further. Hiring intentions were already subdued – the concern is that higher costs will mean that employers resort to redundancies, too. For now, though there are few signs of this (Chart 9).

Chart 9: No signs of a rise in redundancies due to conflict. Still a low hire, low fire, labour market



Source: Investec Economics, Macrobond

The risk to the labour market might convince some on the FOMC to advocate for a further loosening in policy. We think they will be outvoted though, with the majority preferring to hold rates steady until the inflation risk subsides. However, the Fed’s Chair voice holds a lot of weight and it is not clear whose voice that will be post-May, with (Republican) Senator Thom Tillis continuing to threaten to hold up nominee Kevin Warsh’s appointment until the DoJ investigation into current Chair Powell is dropped. Assuming Warsh is eventually approved, it is not clear how he will respond to pressure from the President to lower rates, or how he will transform the Fed – he has spoken about changing the inflation measure that the Fed targets.

Chart 10: Who will be Fed Chair from mid-May when Powell’s term ends?

 



Source: Investec Economics, image from Federal Reserve History

When it comes to rates the focus right now is on the impact of the rise in oil prices. But that is not the only factor that can change the macroeconomic outlook. In the US, tariffs remain a major point of uncertainty. We are creeping towards the July deadline in which the 10% Section 122 tariffs will expire. It is not clear what these will be replaced with, although the administration has started conducting Section 301 trade investigations. Under this legal avenue tariffs must be product specific, but unlike Section 122, there is no ceiling on rates. Although it is not our base case, there is the risk that the President could ramp tariff rates up once again come the summer, threatening the inflation outlook.

Chart 11: A year of twists and turns when it comes to tariffs - the question is what’s next?



Source: Investec Economics, various news agencies

Positive developments in the Middle East have led to some unwinding of 'safe haven' flows. The recent softening in the dollar is more than we previously envisaged and as such we have pushed up our end’26 EURUSD forecast to $1.20 (prev. $1.18). The further weakness in USD from current levels partly stems from a deterioration in the terms of trade as current elevated energy prices fall back alongside our call that the Fed will ease by more than priced into markets. Political uncertainty ahead of the Nov midterms may weigh on the dollar too. Although if the Republicans were to lose both Houses of Congress this would likely impose some constraint on Trump, but the resulting political gridlock could encourage greater use of executive orders.

Chart 12: As the conflict comes to an end so does the period of dollar strength 

 



Source: Macrobond, Investec Economics 

Eurozone

Even with the military phase of the Iran conflict now suspended and talks to end it durably underway (if for now backchannel), its implications will be felt for as long as it takes for oil and gas production to return to previous levels and for this output to reach its customers. Higher fossil fuel prices than pre-conflict are a headwind to the Eurozone, which in aggregate still relies on them for 65% its total energy supply. There is a wide degree of variation between the countries within the EU21 though: at one end of the spectrum is Finland, with a share of 31%, and at the other is Cyprus, with a share of 84% (Chart 13). So, some economies are much more exposed to higher fossil fuel prices than others. 

Chart 13: Fossil fuel dependency varies considerably across the Eurozone



Source: Eurostat, Macrobond and Investec Economics:

Historical comparisons of how individual economies have fared at times of higher energy prices need to be treated with caution when it comes to assessing their impact this time. Not only has the energy mix changed, but energy efficiency has increased markedly over time: less energy is now used to generate a given level of GDP than in the past. A supply reduction of a given size will therefore hurt less than it would have done in previous years. Moreover, progress has not been even; for instance, Italy has recently ceded its status as the most energy efficient of the major economies to Germany (Chart 14). So the economies that are most exposed to any reduced availability of energy products are not always the same as in the past.

Chart 14: Energy efficiency has risen: less energy is needed to generate a unit of real GDP



*KGOE per €1000 in chain-linked volume terms                    Source: Eurostat, Macrobond and Investec Economics

A further factor to consider is the degree to which governments are enacting measures to mitigate higher energy costs for households and firms. The EU Commission has issued proposals for this. Among the measures announced so far, Spain’s €5bn and Germany’s €3.8bn packages stand out (Chart 15). But at 0.3% and 0.1% of GDP, they are far smaller than the 3.4% and 4.4% packages given by these countries at the time of the ’22 (far bigger) Ukraine-related energy crisis. Our aggregate Eurozone GDP forecasts are thus little changed from last month: we now predict GDP growth of 0.9% in 2026, the same as before, but a slightly weaker rate of expansion of 1.7% in 2027 (previously: 1.8%), the latter largely on a downgrade to our forecast for Germany (from 1.9% to 1.6%). 

Chart 15: Energy support measures pledged so far are far smaller than in ‘22/’23



Source: IEA, Bruegel. Macrobond, Investec Economics

When it comes to inflation, the initial impact of the Iran conflict on prices was visible in the March data: inflation jumped from 1.9% year-on-year to 2.6%. Indeed, had it not been for higher energy prices, the inflation rate would have dipped by 0.1%pt. This though is not the full impact of the conflict. Even with the mitigating actions that some countries are taking, we expect inflation in the Eurozone to rise further. We continue to see the most likely path of inflation as one that falls in between the baseline and the adverse scenario the ECB had set out in its March Staff Projections (Chart 16). This is not the scale of impact that calls for large rate hikes akin to those triggered by the last, far larger, energy shock in ’22.  

Chart 16: EU21 inflation looks set to rise further, but substantial rate hikes may not be needed



Source: Eurostat, ECB, Macrobond and Investec Economics

Nor though is the backdrop one where the ECB can be confident that higher energy prices will not lead to material passthrough of such costs, so indirect impacts. There may even be some second-round effects. The historically very low unemployment rate may well overstate the degree of job market tightness, but the ratio of vacancies to the number of unemployed that we calculate points to still fairly tight conditions (Chart 17). With that, we think it is likely the ECB will hike twice this year to tighten the monetary stance and then unwind this next year. The lower risk of a severe scenario looks likely to push back the timing of hikes slightly though: we now predict them in June and July (previously: April & June). 

Chart 17: Unemployment overstates it, but the EU21 labour market still looks fairly tight



Source: Eurostat, Macrobond and Investec Economics

Despite higher energy prices pushing up import costs for the Eurozone, the euro has rebounded alongside risk assets in recent weeks, unwinding most of its losses against USD since the start of the conflict in the Middle East. This is not just a dollar-driven move either: the euro has risen on a trade- weighted basis ex USD too (Chart 18). One supportive factor for the euro is the anticipated tightening in policy by the ECB. Coupled with downside risks for the USD, we expect EURUSD to rise further from current levels and have pushed up our end-‘26 forecast to $1.20 and end-‘27 to $1.22 ($1.18 and $1.20 previously). We also expect the euro to strengthen to 90p against sterling over Q2, as political pressures in the UK weigh on the pound, but for EURGBP to end this year at 88p. 

Chart 18: The euro had regained some strength, and we expect it has further to run 



Source: ECB, Macrobond and Investec Economics:

United Kingdom

The Iran conflict has heightened fears that the UK is at risk of a surge in inflation, as in 2022 when the CPI measure soared to 11.1%. We are more optimistic. Oil prices (front contract Brent crude) did double to $120 per barrel at one point last month, a similar increase to 2021/22, since easing to $103 currently. But gas costs present a striking difference. Current UK prices stand at 113p per therm, up from 78p before the attack on Iran. But in 2022, spot prices soared to a peak of 640p with futures prices as high as 876p (Chart 19). Indeed at one stage the gas component of the CPI was 130% up on a year earlier, which added 1.8% pts to inflation, despite the Energy Price Guarantee (EPG) scheme*.  

Chart 19: Gas futures curves now and in August 2022 – huge disparities



*We estimate CPI inflation would have been 3.25% pts higher without the EPG.    Source: Bloomberg, Investec Economics

CPI inflation in Mar rose to 3.3% from 3.0% in Feb. Looking ahead we have factored in a profile where oil and gas prices soften further from recent peaks, but do not return to pre-conflict levels within two years. We have also incorporated secondary effects (e.g. on food prices) where higher costs are passed onto consumers. But we have included little in the way of 'second round' effects via higher pay growth, due to the amount of labour market slack. We envisage a rising profile, partly driven by the reset of the energy price cap in July, with a peak of 4.0% in Q3, before it drops below 2% next year. At 1% pt, the rise from pre-war levels looks modest, but the key is that inflation is up to 1.7% pts higher than our forecasts before the conflict (Chart 20).

Chart 20: The shift in our inflation forecasts since late-February (before the conflict over Iran)



Source: ONS, Macrobond, Investec Economics

The MPC will not want to make the same mistake as in 2021 and 2022, when monetary policy was left too loose for too long. But as well as the level of gas prices, two other key differences with that period argue against aggressive tightening. First, influenced by a looser labour market, pay growth is close to 3.0%, not 8.0% plus as it was in 2023. Second, the current Bank rate stands at a mildly restrictive 3.75%, against a super accommodative 0.50% in early 2022. At one stage recently, the yield curve priced in four 25bp hikes this year (Chart 21), which BoE Governor Andrew Bailey said did not mirror the MPC’s thinking. Nor does it ours. Our view is still that the Bank rate will remain at 3.75% this year and come down to 3.0% by end-2027. 

Chart 21: At one point, markets were pricing in up to four 25bp hikes this year 



Source: Bloomberg, Macrobond, Investec Economics

The macro implications from the war in Iran led us to downgrade our 2026 GDP forecast last month and broadly the situation is playing out as we had envisaged. But stronger momentum at the start of this year, which saw activity expand +0.5% in February, has resulted in us upgrading our annual growth forecast for this year to 0.9% (0.8% previously). Of course, the recent pick-up in growth pre-dates the conflict and we do still expect a soft patch over Q2 and Q3 of this year as prices remain elevated and weigh on consumption and investment (Chart 22). But from there we expect the economy to enter a recovery, with a resumption in rate cuts in 2027 adding to momentum. We are forecasting growth to be 1.8% in 2027.

Chart 22: The Iran war will dampen activity in the near term, but we do expect a rebound



Source: ONS, Macrobond, Investec Economics

Sir Keir Starmer’s position as Labour leader (and therefore PM) remains under severe pressure. National opinion polls do show that Reform UK's lead has narrowed in recent months to some 5-6%, from 10% or so at the end of last year. Even so Labour is under mounting pressure from the Greens to its left and although MRP* polls from More in Common show that it would win more seats now in a General Election than in January, the results still look catastrophic for the party (Chart 23). The 7 May local elections are critical, with Labour perhaps losing 2000 local authority seats in England, ceding control of the Welsh Senedd and losing further ground to the SNP in the Scottish Assembly. This may…

Chart 23: More in Common’s MRP polls see some Labour recovery, BUT…



*Multilevel Regression and Post-stratification                                     Source: More in Common, Investec Economics

…well lead to a leadership challenge to Starmer over the late-spring/early-summer. At the very least, we still judge that markets will speculate over his departure, together with Chancellor Rachel Reeves, fretting about a potential watering down in the govt’s commitment to fiscal stability. At the end of the day, we are still of the view that the fiscal rules will not be jettisoned or watered down, whoever is in charge. But we continue to anticipate an uncertain period around mid-year, during which gilts and sterling are subject to modest selling pressure, with 10y yields reaching 5.00% and the pound falling to the low $1.30s. Ultimately though we still see markets gaining reassurance over fiscal policy with cable, for example, finishing 2026 at $1.37.

Chart 24: We still see some politically based downside to sterling around mid-year



Source: Macrobond, Investec Economics 

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