A poll of nearly 500 economists, conducted between June 29 and July 27, found a clear shift toward higher inflation expectations for many countries and weaker growth outlooks for a significant subset of the global economy as the Middle East war entered its fifth month.
The survey showed economists raised inflation forecasts for 39 of 50 major economies for this year compared with projections in April, while growth forecasts were trimmed for 32 of those economies. For next year, inflation forecasts were lifted for 37 economies, and growth projections were cut for 21.
Polling took place during a period when hostilities in the region were briefly paused before U.S. forces resumed a bombing campaign and Iran struck targets in the area. Those developments, the economists said, suggest the already deteriorating situation could look worse in coming months and may exacerbate difficulties for central banks that have spent years trying to push inflation back to target.
Inflation and energy
Energy markets reacted to the conflict. Hostilities in a region central to the world’s oil supply briefly pushed crude prices above $100 a barrel last week, and while prices eased after Washington paused a two-week campaign of air strikes on Iran, oil remains more than 20% higher than before the war began in late February.
"The market and some of our colleagues are probably underestimating the persistence of inflation," said Claudio Irigoyen, global head of economics at Bank of America Research, describing the war’s initial impact as "a mild stagflationary shock." He added: "The inflation outlook has to do nowadays with one important thing...the Iran war, because the price of oil can continue climbing higher. Is it going to go to $120, $150? Nobody knows. But I don’t think you’re going to have a significant reduction in oil prices."
Inflation forecasts for 17 of the 21 advanced economies covered in the poll were raised, with the largest revisions concentrated in European countries as well as Australia and New Zealand, though most of those upward changes were marginal.
Government bond yields, which are sensitive to inflation expectations, are also signaling concern. U.S. 10-year Treasury yields are trading near levels described in the poll as their highest since Donald Trump took over as U.S. president for his second term, despite three interest rate cuts since then.
Growth: AI investment masks a split
While the war has lifted inflation risks, a wave of artificial intelligence-related spending has been supporting growth in a small number of economies and helped keep global growth forecasts unchanged across recent quarterly surveys. The poll’s median forecast remains 2.9% growth this year and 3.1% in 2027, unchanged from the April poll.
"It’d be interesting to see where the global economy would be if we didn’t have this wave of spending by large tech companies on AI. I suspect we’d be talking a much weaker economy globally, not just in the U.S.," said Douglas Porter, chief economist at BMO Capital Markets.
Growth projections for the world’s two largest economies, the United States and China - both leading the AI investment surge - remained at 2.2% and 4.6% respectively, unchanged from three months earlier. South Korea and Taiwan, which are benefitting from demand tied to AI hardware, led upgrades to GDP forecasts for 2026.
"A bright spot in many Asian economies, especially in Korea and Taiwan, is AI-related investment," said Frederic Neumann, chief Asia economist at HSBC. He cautioned, however, that the boom is narrowly concentrated: "Much activity is driven, impressively and relentlessly, by the boom in AI hardware - but it is a boom that is narrowly based, benefitting the few and masking stagnation elsewhere."
Regional disparities and outlook for 2026-27
Nearly every economy outside the AI beneficiaries received a downgrade for 2026, with Kuwait, Bahrain, Qatar and Saudi Arabia registering the largest downward revisions after being directly affected by the conflict. Those Gulf economies are, however, expected to rebound in the following year.
In Europe, the euro zone’s growth forecast was cut to 0.5% this year, down from the 0.9% predicted in April, before a projected pick-up to 1.2% in 2027.
Implications for policymakers and markets
Economists in the poll signaled an environment where persistent inflation and volatile energy markets could complicate central bank decisions. At the same time, concentrated AI investment has created a growth divergence across countries, supporting headline global growth but masking weaker performance in many regions.
The poll and accompanying commentary emphasize that, while headline global growth forecasts have held steady, the balance of risks has shifted toward higher inflation and uneven expansion across economies and sectors.
Polling, analysis and reporting for the survey was carried out across multiple bureaus. Additional reporting and editing were noted for the final compilation of the poll results.