Goldman Sachs Updates Macro Outlook: Geopolitical Conflict Weighs on Growth, Inflationary Pressures Persist

Overview

Goldman Sachs’ latest macroeconomic outlook highlights heightened geopolitical tensions—particularly energy supply disruptions stemming from the Iran conflict—as a growing headwind to global growth in 2026. While policy easing and supportive measures in select economies help mitigate downside risks, rising energy prices remain a key challenge. The report forecasts global GDP growth of 2.4% and a modest decline in core inflation—still above target levels. Divergence emerges in U.S. and euro-area monetary policy paths: the Fed is expected to cut rates twice this year, while the ECB may continue tightening.

Core views

The report argues that geopolitical risks arising from the Iran war are intensifying, severely constraining oil shipments through the Strait of Hormuz and sustaining elevated energy prices, thereby dampening the global growth outlook. Global real GDP growth is projected at 2.4% year-on-year, with core inflation declining to 2.4%. In the United States, higher oil prices and increased geopolitical uncertainty are expected to weigh on activity, resulting in full-year GDP growth of 1.9%. Core PCE inflation is forecast to fall to 2.7% by year-end, while the unemployment rate is expected to rise to 4.6%. The Fed is anticipated to deliver two 25-basis-point rate cuts—in September and December—bringing the terminal federal funds rate to a range of 3.00%–3.25%; however, the report cautions about the risk of pausing further easing. For the euro area, similarly impacted by rising energy costs, annual GDP growth is projected at just 0.5%. Core inflation is expected to peak at 2.5% in Q3 and remain elevated. The ECB plans to raise its main policy rate twice—in June and September—to reach 2.5%, before initiating gradual rate cuts in 2027. In China, although weak domestic demand and ongoing property-sector adjustment pose headwinds, sustained policy support is expected to foster a modest recovery. Full-year GDP growth is forecast at 4.7%, with CPI and PPI rising 1.0% and 1.2%, respectively.

Analysis framework

The report employs a Global Composite Activity Index (CAI) to gauge current economic conditions across countries and combines this with historical GDP data to project future trajectories. It also incorporates commodity price volatility, monetary policy direction, and regional structural differences to generate differentiated forecasts for individual economies. Additionally, the report uses charts to illustrate historical performance and forward-looking paths for key economic variables—including growth trends for the global economy, the U.S., China, and the euro area—to help readers intuitively grasp the underlying logic of its projections.

Methodology notes

• Macroeconomic frameworkPhillips curve

  A trade-off exists between inflation and unemployment

  The report applies this classic economic principle when analyzing the interplay between unemployment and inflation—for instance, projecting a slight rise in U.S. unemployment alongside a gradual decline in core inflation.

• Cycle & Business Conditions FrameworkBusiness Cycle Turning Point Analysis

  Identifying inflection points in the economic cycle

  By dynamically monitoring the Global Composite Activity Index (CAI), the report seeks early signals of shifting growth momentum to anticipate potential turning points in the business cycle.

• Industry/Sectoral Analysis FrameworkSupply-demand framework

  Market prices are determined by the balance of supply and demand for goods and services

  Regarding crude oil and other commodities, the report emphasizes supply-side shocks caused by Middle East geopolitical conflict and their cascading effects on the global economy.

Key data

• 2026 Global GDP Growth2.4%Year-on-year, reflecting downward revision amid heightened geopolitical risks
• 2026 Global Core Inflation2.4%Year-end forecast, partially offsetting disinflationary forces due to higher energy prices
• 2026 U.S. GDP Growth (Q4/Q4)1.9%Dragged by high oil prices and geopolitical uncertainty
• 2026 China GDP Growth4.7%Supported by policy stimulus and easing property-sector pressure
• Fed’s 2026 Policy Rate Terminal Range3.00%–3.25%Two 25-basis-point cuts expected in September and December
• ECB’s 2026 Policy Rate Peak2.5%Two 25-basis-point hikes expected in June and September

Impact & implications

This macro outlook reveals weakening global growth momentum amid persistent geopolitical risks, with inflation showing resilience despite some moderation. This environment may prompt central banks worldwide to adopt more cautious and nuanced monetary policy responses. Investors should closely monitor energy market volatility, shifts in policy pacing across the U.S., China, and the euro area, and broader financial market stability.

Risks

• Escalation of the Iran war could cause further energy supply disruptions
• Global economic recovery proceeds more slowly than anticipated
• Inflation declines more slowly than expected, compelling central banks to recalibrate policy paths
• Heightened financial market volatility affects asset pricing

What to watch

• Progress of the Iran conflict and its tangible impact on energy supply chains
• Policy signals emerging from upcoming Fed and ECB meetings
• Effectiveness and timing of China’s growth-supporting policy measures
• Price dynamics of commodities—especially crude oil