Macro: slower growth, stickier inflation

The global economy entered 2026 looking steady, then a new oil shock and renewed trade tensions raised the odds of slower growth with inflation that fades more slowly. (brookings.edu) The International Monetary Fund said in January that world growth would hold at 3.3 percent in 2026, with inflation still falling overall. Brookings wrote on April 12 that those estimates were based on data from before the Iran war and warned the conflict would “almost certainly” push inflation higher. (imf.org) (brookings.edu) The Organisation for Economic Co-operation and Development had already projected a 2026 slowdown as higher effective tariff rates and fading front-loaded demand fed through to activity. The World Bank said on January 13 that global growth would ease to 2.6 percent in 2026, even before the latest Middle East shock. (oecd.org) (worldbank.org) Inflation and growth usually cool together after central banks raise rates, but supply shocks can break that pattern. When oil, shipping, or import costs jump, households and businesses pay more even as demand weakens. (ecb.europa.eu) (federalreserve.gov) That is the bind policymakers are describing in March and April. The European Central Bank said on March 19 that the war in the Middle East created upside risks for inflation and downside risks for growth, while the Federal Reserve’s March 17-18 minutes showed officials weighing tariff and energy shocks against softer demand. (ecb.europa.eu) (federalreserve.gov) Trade policy is part of the story even without a shooting war. The United Nations Conference on Trade and Development said in its January 2026 trade update that governments were using more tariffs and industrial policy tools, and that uncertainty was likely to persist through 2026. (unctad.org) Brookings said financial markets had been booming in many countries and private-sector confidence was improving before the Iran war. It also said the United States Supreme Court’s reversal of Liberation Day tariffs had briefly improved the trade outlook without restoring a predictable policy path. (brookings.edu) The risk is not a repeat of the 1970s in every country, but a world where inflation stops falling cleanly and central banks cut rates more slowly. The World Bank said the 2020s are already on track to be the weakest decade for global growth since the 1960s if current forecasts hold. (worldbank.org) What happens next depends heavily on oil and the duration of the conflict. Brookings said the two key questions are whether the war ends soon without major damage to regional energy infrastructure, and whether it ends with durable peace rather than a longer period of instability. (brookings.edu)