S&P Global Economic Outlook: Oil Shock Drives GDP Cuts, Inflation Rises, Rate Hikes (May 2026)

S&P Global Economic Outlook: Oil Shock Drives GDP Cuts, Inflation Rises, Rate Hikes (May 2026)

S&P Global's May 2026 outlook paints a deteriorating macro picture dominated by the Middle East energy shock. Their annual global real GDP growth forecast for 2026 now stands at just 2.2%, down from 2.9% in February, and remains below consensus with the gap widening.

Oil assumptions:

• Dated Brent crude expected above $100/bbl through the remainder of 2026
• Strait of Hormuz assumed effectively closed through May, with flows recovering from June
• Annual average Brent prices in 2026 and 2027 are ~100% and ~60% higher than pre-conflict February forecasts
• In an adverse scenario with more protracted disruptions, Brent stays above $150/bbl through end of 2027

Inflation impact:

• Consumer price inflation forecasts raised across the board, now including for 2027
• S&P Global's Materials Price Index was 40% above year-ago levels as of mid-May, with increases not confined to energy
• PMI data show global manufacturing input price index jumped 9 percentage points in two months — the largest back-to-back increases in over 15 years
• Indirect effects of higher energy prices on other prices "can take many months to fully filter through"

Monetary policy shifts:

• Additional rate hikes added for Western Europe in 2026, led by the ECB
• Fed's next rate cut pushed out to mid-2027 (under new chair)
• Futures markets now discount a higher likelihood of a hike than a cut next year
• Real GDP contractions (modest) expected in Germany, France, Italy, and the UK

Key risk: Financial markets are discounting a swift resolution of the Middle East conflict. S&P Global's assessment is "increasingly at odds with the outcomes seemingly discounted by financial markets." Sovereign bond yields are under renewed upward pressure globally. AI-related capital spending remains robust — U.S. private fixed investment in information processing equipment and software now exceeds its dotcom-era peak as a share of GDP — but growth risks becoming "precariously narrowly-based."