The energy shock brought about by the war in the Middle East has only slightly trimmed global GDP growth projections for 2026. Deutsche Bank Research now projects 3% growth compared to 3.1% in November 2025. Unsurprisingly, however, inflation is rising more sharply than anticipated seven months ago. Global headline CPI for 2026 is now expected to be 3.8%, versus the 3.1% projected in November 2025.
Renewed inflationary pressure is also shifting monetary policy expectations, with central banks in the euro area and much of Asia now expected to raise rates this year. The Fed, by contrast, is expected to remain on hold, although persistent inflation could still force it to tighten its monetary policy.
The US remains resilient, Europe is under pressure and China is stabilising: these are the central messages of Deutsche Bank Research’s mid-year World Outlook, published on 1 June. While the report pre-dates the 14 June announcement of a US-Iran framework agreement to end hostilities, its baseline scenario had already assumed that a deal would be reached in June.
Figure 1: Deutsche Bank GDP growth forecasts
Source: Bloomberg Finance LP, Deutsche Bank
Compared to the outlook published seven months ago, the team remains cautiously optimistic for the world economy. Yet, drawing on an analogy from history, Deutsche Bank Research’s Jim Reid and David Folkerts-Landau describe the uncertainty the economy currently faces: “The world economy is grappling with a complex interplay of persistent AI-driven optimism and the disruptive force of the Middle East conflict, making it feel like 1999 meets 1990, but hopefully not 1973.”
In 1990, the Gulf War led to a sharp but short-lived spike in crude oil prices. By contrast, 1973 evokes the outbreak of the Yom Kippur War and the Arab oil embargo that followed – a crisis that ushered in stagflation and a new awareness of energy vulnerability. 1999 was a landmark year for technology, introducing breakthroughs in computing hardware and early wireless internet – but also one where the Dotcom bubble reached its peak.
“It feels like 1999 meets 1990, but hopefully not 1973”Jim Reid and David Folkerts-Landau, Deutsche Bank Research
27 years on and the world again finds itself at geopolitical and technological crossroads, the Deutsche Bank Research team argues. “Geopolitical volatility has become less a temporary disruption and more a structural characteristic of the international system”, writes Helen Belopolsky, Global Head of Geopolitical Research and team. “We should expect more geopolitical shifts in the second half of 2026.”