Macro views

Economic cycles more resilient than expected, with the inflationary shock now behind us.

August 11, 2026 - 9 min

Macroeconomic scenario article featured image

Head of Global Market Strategy – Natixis IM

Macroeconomic Scenario – July 2026

The conflict in the Middle East has created geopolitical uncertainty that has impacted global economies through higher energy commodity prices. Although this inflationary shock appeared to be easing following encouraging news about a potential peace agreement, recent developments in the region have once again made the situation precarious. Markets appear to have priced in the sustained reopening of the Strait of Hormuz, and fears of supply chain disruptions are fading. The decline in energy input prices is good news for dependent economies, particularly in Asia and Europe. However, global demand will remain resilient only if central banks recognize the transitory nature of the inflationary shock and if the U.S. administration provides the necessary political breathing room in the second half of the year – a period that will be shaped by the midterm elections. We can expect an economic divergence between the economies driving the investment cycle linked to the technological revolution in the United States and Asia, and those lagging behind in terms of technological transition, industrial development, and military sovereignty – particularly in Europe.

The inflationary shock now lies behind us. Despite its magnitude, its temporary nature means it will not have a lasting impact on expectations

Reported information indicating a gradual reopening of the Strait of Hormuz and a cessation of hostilities in the Middle East has led to a significant drop in energy commodity prices. However, Figure 1 shows that the actual reopening of the strait is far from certain. Maritime shipments of oil, LNG, and fertilizer are still far from returning to their pre-conflict levels. Furthermore, the conflicting parties have entered a phase of negotiations in which a lasting peace agreement that satisfies all parties seems out of reach.

Figure 1: LNG, Crude oil and Fertilizers transit through Hormuz (index, 100 = 2025 average)

LNG, Crude oil and Fertilizers transit through Hormuz chart

Nevertheless, the term structure of market expectations of Brent crude oil prices, as illustrated in Figure 2, has returned to its pre-conflict levels. This apparent inconsistency masks a fundamental reality. In addition to the energy bottleneck in the Strait of Hormuz and the pressure exerted, in particular, on Asian fuel reserves, the structural overcapacity of oil-producing countries – combined with declining oil consumption in their economies – is exerting downward pressure on long-term prices. This also explains why the market has not anticipated a long-term rise in prices (Figure 2). Furthermore, the stated intention of several OPEC countries to leave the cartel could, in the long term, free them from the organization’s production quotas and maintain downward pressure on crude oil prices.

Figure 2: Brent futures (since start of year, blue – last data point, red)

Brent futures price chart showing market expectations

Developed and emerging economies have thus experienced an exogenous shock to energy prices, without any quantity rationing. This shock is expected to lead to a temporary decline in the real incomes of households and businesses. Beyond the direct impact on input prices and transportation costs, second-round effects are not likely to materialize. This is particularly true for developed countries, whose economies are no longer in a recovery phase characterized by strong post-pandemic demand. Such a situation would have allowed the pressures arising from the start of the Russia-Ukraine conflict to spread more widely to the “rigid” components of the basket of goods – namely, services and manufactured goods.

Figure 3 presents possible trajectories for the price per barrel over a one-year period (based on Brent futures contracts or scenarios in which the price stabilizes at $80 or $70 per barrel throughout the projection period) and their effect on year-over-year changes in the consumer price index in the United States and the euro area. For illustrative purposes only, we also consider downside risks to the EUR/USD exchange rate. These scenarios confirm that, under current conditions, the shock was purely transitory, despite its magnitude. However, the level at which the price per barrel ultimately stabilizes will be decisive for the pace of normalization of price dynamics. For example, a price of $70 per barrel over the course of the year would result in average annual growth rates of 2.3% and 3% for the Harmonized Consumer Price Index in the eurozone and the United States, respectively, in 2026. If prices were to remain around $80 for the rest of the year, inflation would rise to 2.5% and 3.2%, respectively.

Figure 3: Projected inflation trends in the US (left) and the Eurozone (right) as a function of the price per barrel

Projected inflation trends in the US and Eurozone chart

The impact of this shock, stemming from volatile inflationary components, on services and high-priced goods will likely be only moderate on both sides of the Atlantic. The normalisation of labour market pressures and the associated slowdown in wage growth, coupled with falling tariffs in the United States, will exert downward pressure on the underlying index. An alternative way of gauging the extent of this pressure, particularly in Europe, is to measure the proportion of the goods and services in the basket used to calculate the Consumer Price Index that are rising at a certain rate. Figure 4 shows that almost half of inflationary components have a year-on-year rate of change below the central bank’s target. This is far from the levels observed in 2022. The proportion of components with a rate of change exceeding 10 per cent has been falling for the past two months.

Figure 4: Proportion of items in the basket of the Consumer Price Index in the US (left) and the Eurozone (right) with an annual change of less than, between, or greater than:

CPI basket proportion chart for US and Eurozone

The situation in the United States is open to more debate, since the rise in prices is not rooted in the March 2026 energy shock. Clearly, a significant proportion of the goods and services in the basket are currently trading above the Federal Reserve’s target, at around 60 per cent. These pressures are likely to stem from strong domestic demand and residual price effects, which are expected to subside in the second half of the year.

The transatlantic economic divergence is set to widen over the course of the year, driven by the scale of investment by US companies and the status of the world’s largest economy as the world’s leading producer of oil and gas.

We remain positive about the outlook for global growth, driven by the substantial investment required for the ongoing technological transition. Regional growth trajectories will depend primarily on investment in 2026 and 2027, as illustrated in Figure 5, which shows investment trends in new information and communication technologies, as well as intellectual property products.

Figure 5: Investment in new information and communication technologies (ICT) and in intellectual property products (IPP) (1995 = 100)

ICT and intellectual property investment trends chart

We note that investment discipline in the United States is not only strong but is also continuing to grow. The eurozone economies are not far behind, with rising investment in intellectual property. U.S. investment in IT and data storage infrastructure, through its “hyperscalers,” can be assessed in light of the projected 36% increase in investment in information and communication technologies by 2025.

The dynamics of value creation will also be determined by the magnitude and persistence of the inflationary shock, which is eroding real household incomes and corporate margins. This is particularly true in regions that are not energy self-sufficient. Geopolitical uncertainty has also led companies excluded from the technology investment supercycle to slow down their investment plans. In terms of consumption volumes, we estimate that U.S. households are better protected from the current shock than their European counterparts. This is due to the favorable tax measures introduced by the BBB (Big Beautiful Bill), which was passed last year. The positive wealth effect – characterized by these economic agents’ greater exposure to the performance of U.S. stock markets – is another factor that has historically contributed to the resilience of domestic demand across the Atlantic, particularly during temporary nominal shocks.

However, the responses of central banks, coupled with the tightening of financial conditions due to rising borrowing costs (both nominal and real), could slow the pace of domestic demand expansion in a context where governments’ fiscal space remains limited to counterbalance the aforementioned negative shock. However, we note that the responses of various central banks in major economies differ, and this is the subject of a separate note accompanying this publication. In contrast to the more restrictive stance adopted by the ECB throughout the year, the Fed’s neutral stance will amplify the divergences in growth trajectories on both sides of the Atlantic.

The trend in domestic demand will also depend on labor market dynamics and the balance between labor supply and demand, which could lead to an increase in household income. Figure 6 illustrates, from this perspective, contrasting situations on both sides of the Atlantic as well as in Japan. While the European and Japanese economies continue to rely heavily on the labor force, with higher labor force participation rates, structural fragility is beginning to emerge in the United States, confirming the hypothesis of a two-speed economy. Over the past few quarters, the proportion of the working-age population that is employed or actively seeking work has steadily declined. This phenomenon is all the more striking given that labor productivity in this economic region continues to buck the downward trend. For now, it is practically impossible to attribute this trend to the ongoing technological revolution. However, we can say that the measures to support productive investment implemented by various administrations since 2015, as well as the supply-side policy embodied by the Biden administration, appear to be bearing fruit. We see this as further evidence supporting the hypothesis that the U.S.’s potential growth – which is already higher than that of its developed counterparts in Europe and Asia – has likely received a positive boost in recent years. This confirms our view that the U.S. economy will continue to grow slightly above its potential in 2026, while growth in the eurozone and Japan is expected to remain modest due to limited fiscal room for maneuver, negative household and business confidence, and relatively cautious investment.

Figure 6: Labour force participation rate and labour productivity

Labour force participation rate and productivity chart

An alternative way for assessing the cyclical position of economies is to filter the cyclical component out of employment and price aggregates using signal frequency decomposition. This makes it possible to identify overheating or downturn regimes along these two axes.

Figure 7 summarises the positions of the US, European and Japanese economies within their respective economic cycles. As can be seen, each of these economies is in a different situation. According to this analytical framework:

the United States is experiencing a cyclical rise in the unemployment rate and disinflation. This justifies the Federal Reserve’s wait-and-see approach.
The eurozone is characterized by a simultaneous decline in price aggregates and unemployment.
For its part, the Japanese economy remains overheated, with cyclical factors contributing to rising inflation and falling unemployment. This indicates that the Bank of Japan should continue to normalize its monetary policy.

Figure 7: Positioning of the US, European and Japanese economies

Economic cycle positioning for US, Europe and Japan

Central scenario

In 2026, we are likely to see a divergence in economic cycles (the US versus the rest of the world), with a possible reconvergence in 2027. However, sustained domestic demand in the US is expected to drive the Eurozone economy to some extent via the trade balance. Global growth is expected to remain close to 3 per cent. A dichotomy is expected to emerge in the developing world between economies that are exposed to new technologies and digital infrastructure and those that are not, with the latter suffering from a normalisation of commodity prices.

Central Scenario: Real GDP forecasts

Natixis IM | Solutions and Refinitiv* NIM | solutions Forecasts

The inflation seen in the first half of the year, coupled with the conflict in the Middle East, is expected to stabilise until early 2027 as tensions ease and the pressure on supply chains decreases. While prices for certain categories of goods, particularly storage and computing capacity, are expected to continue rising, the bulk of underlying inflation is likely to remain contained as pass-throughs via wage pressures or the rationing of available goods and services are unlikely at this stage.

Central Scenario: Inflation forecasts (headline)

Central scenario inflation forecasts table

Natixis IM | Solutions and Refinitiv* NIM | solutions Forecasts

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Economic cycles more resilient than expected, with the inflationary shock now behind us.

Macroeconomic Scenario – July 2026

The inflationary shock now lies behind us. Despite its magnitude, its temporary nature means it will not have a lasting impact on expectations

Figure 1: LNG, Crude oil and Fertilizers transit through Hormuz (index, 100 = 2025 average)

Figure 2: Brent futures (since start of year, blue – last data point, red)

Figure 3: Projected inflation trends in the US (left) and the Eurozone (right) as a function of the price per barrel

Figure 4: Proportion of items in the basket of the Consumer Price Index in the US (left) and the Eurozone (right) with an annual change of less than, between, or greater than:

The transatlantic economic divergence is set to widen over the course of the year, driven by the scale of investment by US companies and the status of the world’s largest economy as the world’s leading producer of oil and gas.

Figure 5: Investment in new information and communication technologies (ICT) and in intellectual property products (IPP) (1995 = 100)

Figure 6: Labour force participation rate and labour productivity

Figure 7: Positioning of the US, European and Japanese economies

Central scenario

Central Scenario: Real GDP forecasts

Natixis IM | Solutions and Refinitiv* NIM | solutions Forecasts

Central Scenario: Inflation forecasts (headline)

Natixis IM | Solutions and Refinitiv* NIM | solutions Forecasts

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