Can the global economy withstand yet another shock?

As the Strait of Hormuz closure dragged on into its fourth month, Atradius Economists Theo Smid, Dana Bodnar and myself started asking the question: are we facing stagflation?

So far, at least, we agree cautiously that the answer is no. The combined impacts of government fiscal interventions to control inflation and the AI boom are helping to anchor the global economy and prevent inflation from spiralling. The recent ceasefires and limited reopening of the Strait will undoubtedly also help, although we recognise the peace is fragile and forecasting must be heavily caveated with uncertainty.

What we do know is that the global economy is in a better place than it was when it was plunged into recession following the Covid-19 pandemic. The same is true for the Russian invasion of Ukraine, which happened when the world had not yet had chance to recover from the supply chain imbalances caused by the pandemic shutdowns.

And while we are by no means out of the woods yet, if we can assume a gradual reopening of the Strait and a resumption of trade of oil, gas and fertiliser feedstocks, we believe the global economy will recover from this most recent hit.

What is Global GDP growth in 2026?

Our current global forecast for 2026 is for GDP growth to slow to 2.4% in 2026, down from 3% in 2025. Working from the scenario that the Strait of Hormuz will gradually reopen during Q4 of this year, we anticipate a recovery to 3.1% growth in 2027.

However, when we dig deeper, an uneven GDP picture emerges with a divide between advanced and emerging economies. For advanced economies our predictions point to slow and uneven growth. When combined, our forecast suggests growth of just 1.5% in 2026, down from 1.9% last year and growing to a modest 2.0% in 2027. The uneven picture shows growth concentrated in fewer sectors and geographies.

The US will deliver the strongest GDP growth figures, underpinned by the AI boom. The eurozone is more impacted by its exposure to imported energy and a weakening manufacturing sector. Elsewhere, individual countries are struggling with muted consumer confidence and fiscal constraints, including the UK and Japan.

On the other side of the divide, emerging economies are demonstrating GDP growth. This is not a new story, nor a surprise, but we do note the growth momentum has slowed compared to previous years. We expect emerging market economies to grow by 3.7% this year and by 4.2% next year. The fastest growing major economy is India. China appears to be slowing slightly. Our forecasts suggest China will see GDP growth of 4.8% this year, and 4.6% in 2027.

What are the downside risks facing the global economy this year?

As indicated above and explored in more detail in our Economic Outlook, the greatest threat to the global economy this year is a re escalation of the US Iran conflict, with the Strait of Hormuz remaining closed to shipping through the end of the year. A prolonged closure would cause energy prices to spiral up, impacting businesses and consumers, as well as producers reliant on petrochemical feedstocks for products such as fertilisers and polymers.

Under this scenario the global economy would be at severe risk of recession. We would expect to see GDP growth levels stalling to around 1.9% this year and 1.4% in 2027.

In addition to the conflict in the Middle East is the spectre of the trade war and ongoing threat of US tariffs. While currently capped and enjoying a level of consistency, tariffs have not gone away and currently remain at higher levels than they were under the previous US administration. That said, the trade war has not played out to the degree we initially feared, and allows us to acknowledge an element of optimism.

Download our Economic Outlook: Stagflation contained