Testing the resilience of the global economy

The conflict in the Middle East is reshaping the global macro backdrop, with higher energy and fertiliser costs feeding a stagflationary mix of weaker growth and stickier inflation. The OECD has cut growth forecasts, with the UK among the hardest hit, reflecting its heavy reliance on imported energy and exposure to oil supply disruptions.

Headline G20 inflation is now expected to re-accelerate before easing again, pushing markets to price in multiple rate hikes from major central banks despite their recent decisions to hold policy rates steady. This shift has driven sharp bear flattening across government bond curves and renewed volatility in credit markets as investors reassess duration and spread risk.

In this environment, advisors may find relative resilience in real assets that can help hedge inflation, while selectively targeting structural growth themes such as artificial intelligence to balance cyclical headwinds.