Global economic outlook Report Interpretation

Overview

This global macro outlook examines how a prospective reopening of the Strait of Hormuz, the AI investment cycle and severe El Niño conditions jointly shape growth, inflation, trade, fiscal policy, central-bank decisions and exchange rates through 2026-27. HSBC retains its central global growth forecasts but stresses unusually uneven regional outcomes and material downside scenarios.

Core views

HSBC’s central case is that the US-Iran ceasefire extension supports a sustainable, gradual reopening of the Strait of Hormuz. Brent had fallen to around USD80/b from spikes of up to USD120/b in April, and HSBC assumes Gulf output and traffic restart from mid-June and return to near-normal system-level production and flows by end-Q3 2026. This reduces the near-term growth downside and inflation upside from the energy shock, but does not restore pre-war conditions immediately: mines must be cleared, insurance reinstated, ships repositioned, storage emptied, fields restarted and inventories rebuilt. Input prices for crude, diesel, jet fuel and gas derivatives remain around 30% above pre-conflict levels, continuing to pressure margins, real incomes and confidence. The oil-market adjustment is central to the forecast. China’s May crude imports were 4.5mb/d below normal levels, while the US had exported roughly 134m additional barrels since March, largely from the Strategic Petroleum Reserve and commercial stocks rather than higher production. HSBC expects these depleted inventories ultimately to be rebuilt, adding medium-term demand. Under the adverse partial-reopening scenario, less than half of pre-conflict crude traffic moves through the Strait, the market remains in deficit, reserves keep falling and oil could rise to USD140-150/b over the following six months. At 50% traffic, HSBC estimates about 5.5mb/d of oil would still be missing in the short term, declining to about 3.7mb/d after the UAE’s Fujairah pipeline is completed, targeted for 2027. Higher refined-product prices, weaker real incomes, more inflation and tighter policy could push some economies into recession. In the base case, global GDP growth remains 2.5% in 2026, the weakest pace since the pandemic, and 2.7% in 2027. HSBC expects a softer Q2-Q3 as households face lower real wages and non-AI investment is restrained by higher rates, while global trade remains resilient. World trade is expected to expand by nearly 5% in 2026. The report sees an electronics-led divergence: Asian export growth is expected to exceed 8% for the remainder of 2026, Europe’s exports are expected to struggle to grow, and North American export growth is expected to be below 2%, partly reflecting tariff-related base effects. The largest 2027 growth upgrade is to the US, while India and Brazil see the largest downgrades because energy-shock lags and El Niño are expected to weigh on late-2026 carryover. AI is the main offsetting source of investment and trade strength, but its benefits are concentrated. Taiwan’s electronics export orders doubled over the prior year and its Q1 GDP growth reached 14% year-on-year. US investment in data centres, software and IT equipment has grown by more than 20% annually since Q1 2025 and lifted US GDP growth by nearly 1 percentage point in recent quarters. Taiwan, Korea and the US are the clearest beneficiaries; Taiwan’s and Korea’s exposure is concentrated in TSMC, Samsung and the broader electronics supply chain. HSBC expects the six major cloud providers to increase aggregate capex budgets by 73% in FY2026 and another 43% in FY2027. Power availability, heavy-duty gas-turbine lead times, cooling, memory prices and higher metals costs are potential bottlenecks. The report argues that AI’s consumer, productivity and labour-market effects are less broad than its capex effects. US private AI investment in 2025 was USD285bn, around 1% of GDP, compared with roughly USD21bn in Europe and USD12bn in mainland China, both around 0.1% of GDP. Workplace use remains low: 32% of British workers and 28% of US workers reported regular use, while smaller firms use AI in only 15-20% of cases versus around 30% for larger firms. Yet labour-market effects may be emerging through hiring: 12% of announced US layoffs in May 2026 were attributed to AI or digitisation, up from about 2% in mid-2025, and UK graduate vacancies had fallen almost 35% year-on-year to March 2026. HSBC expects AI investment and trade to stay resilient in the base case, but says higher rates, elevated construction costs or an equity-market correction could reduce AI investment appetite. Inflation should slow as oil prices fall, but HSBC does not expect risks to disappear quickly. Energy added 3.8 percentage points to Thai headline inflation and 2.1 points to Philippine inflation by May relative to February; it added at least 1 point in the US and the three largest eurozone economies. Broader core-price pressure is still limited, but fuel-related services, transportation and food away from home have risen. Food prices typically lag energy by 6-9 months, leaving a longer inflation hump and a risk of second-round effects if more firms pass higher input costs to customers. El Niño adds a separate food-price and growth shock. NOAA estimates a greater-than-60% likelihood of a very strong, or ‘super’, El Niño. HSBC identifies India, Indonesia, Bangladesh and Nigeria as particularly vulnerable, while Brazil and India are among the economies expected to experience the largest food-price effects. Energy disruption has already raised diesel, fertiliser, shipping and packaging costs; sea freight rates are about 80% higher since the start of the year, air freight about 30% higher, and South Korean plastic-film and sheet prices are 24% higher since February. Food inflation is expected to rise above 8% in Australia, the Philippines and India, while mainland China’s food CPI is forecast to rise above 3% in mid-2027. The UK’s food inflation is expected to exceed 6% year-on-year in mid-2027, chiefly due to delayed labour-cost pass-through. Policy implications differ by region. Lower oil prices lead HSBC to expect no further ECB hikes and no BoE hike, with both potentially cutting in 2027; the ECB is forecast to reverse its June hike in September 2027. The US remains the key upside rate risk: the FOMC held the funds range at 3.50-3.75% in June, and HSBC sees headline and core PCE above 3% until Q2 2027; a move in unemployment toward 4% alongside that inflation profile would make a Fed hike likely. Several Asian economies are expected to face additional tightening pressure in H2 2026, while Mexico and Brazil are expected to remain on extended pauses. HSBC also expects the USD to strengthen further against most G10 and many emerging-market currencies, supported by US growth exceptionalism and a greater perceived likelihood of a Fed hike than a cut. Fiscal policy has cushioned the energy shock but may become a drag in 2027. Governments have used fuel price controls, tax reductions and subsidies to limit household income losses. Thailand’s THB400bn loan decree, equal to 2.1% of GDP, supports its 2026 growth forecast but contributes to HSBC lowering its 2027 forecast. HSBC estimates that more than three-quarters of covered economies will tighten fiscal policy in 2027 and nearly 60% will reduce deficits below 2025 levels, absent another shock. This expected tightening, alongside high debt and rising defence, ageing and energy-transition spending demands, is a key reason why growth prospects remain subdued despite a lower oil-price path.

Analysis framework

HSBC starts with two oil-supply scenarios for the Strait of Hormuz and traces them through inventories, energy and refined-product prices, inflation, real incomes, trade, investment and policy rates. It then layers in AI capex and export data, labour-market and adoption indicators, and El Niño-related agricultural and supply-chain costs. Country forecasts use GDP-weighted growth aggregates and PPP-weighted inflation aggregates, with comparisons against the prior Global Economics Quarterly forecast round.

Methodology notes

• Industry AnalysisSupply-demand framework

  Oil supply-demand and inventory analysis under full versus partial Strait reopening scenarios

  HSBC assesses oil prices through available flows, depleted inventories, rebuilding needs, bypass-pipeline capacity and potential supply deficits, then links those outcomes to global growth and inflation.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Energy and food supply-chain cost pass-through

  The report follows how oil, diesel, fertiliser, freight and packaging costs affect farm output, food prices, corporate margins and consumer inflation.

• Event-Driven and Behavioral FinanceEvent-driven analysis

  Scenario analysis for ceasefire durability and Strait reopening

  The base and adverse cases isolate how different geopolitical outcomes change oil prices, policy responses and regional growth paths.

Key data

• Global GDP growth forecast2.5% in 2026; 2.7% in 2027Both forecasts are unchanged; 2026 would be the weakest pace since the pandemic.
• Brent oil priceAround USD80/bLevel at publication after the ceasefire extension; HSBC’s adverse case reaches USD140-150/b.
• Global inflation forecast3.8% in 2026; 3.1% in 2027Upward revisions are concentrated in emerging economies despite lower oil-price assumptions.
• Taiwan Q1 GDP growth14% year-on-yearDriven by AI-related electronics production and exports.
• US AI-related investment growthMore than 20% per year since Q1 2025Data-centre, software and IT-equipment investment lifted US GDP by nearly 1 percentage point in recent quarters.
• Probability of very strong El NiñoMore than 60%NOAA estimate cited by HSBC for a potential ‘super El Niño’.
• Sea freight ratesAbout 80% higher since the start of the yearA contributor to higher food-import costs.

Impact & implications

HSBC sees a world in which lower oil prices prevent a sharper global downturn, but do not create a uniform recovery. AI investment supports US and Asian electronics-led growth, while real-income pressure, food inflation and later fiscal tightening constrain consumption and weigh more heavily on energy-importing and agriculture-dependent economies. A durable Strait reopening is the key condition behind the central outlook.

Risks

• A failure to secure a durable US-Iran settlement or only a partial Strait reopening could raise oil prices toward USD140-150/b, weaken growth and trigger more forceful monetary tightening.
• El Niño could materially raise food inflation and damage agricultural output, especially in lower-income, agriculture-dependent economies and emerging markets.
• Energy, food and supply-chain costs could produce broader second-round inflation effects if companies pass through higher inputs.
• Higher commodity, component and financing costs or an equity-market correction could slow AI infrastructure investment.
• Fiscal consolidation in 2027 could weaken demand in many economies after energy-support measures have expanded deficits.

What to watch

• Whether the ceasefire holds and Strait of Hormuz traffic, Gulf production, insurance and shipping flows normalize by end-Q3 2026.
• Oil inventories and the pace of rebuilding in China, the US Strategic Petroleum Reserve and global commercial stocks.
• Energy-price pass-through into core inflation, food prices and corporate output prices.
• The severity and geographic effects of El Niño on harvests, fertiliser availability and food-import costs.
• AI capex plans, power availability, memory and metals costs, and evidence of broader AI adoption or labour-market effects.
• US inflation expectations and labour-market slack, as well as subsequent Fed policy signals.
• The scale of fiscal tightening planned for 2027 and its effects on domestic demand.