By Hari Kishan and Sarupya Ganguly
BENGALURU, July 28 (Reuters) – The prospect of persistently high inflation in the global economy is rising, according to a Reuters poll of nearly 500 economists who mostly raised inflation forecasts and cut growth views as the war in the Middle East entered its fifth month with no end in sight.
Polling took place at a time when hostilities were briefly paused before the U.S. again resumed a bombing campaign and Iran hit targets in the region, which suggests an already deteriorating situation may look even worse in coming months.
The latest developments, which so far have not dislodged global growth expectations for the coming year and next, may create an even bigger challenge for many major central banks that had already spent years trying unsuccessfully to bring inflation down to target.
Economists in Reuters polls conducted June 29 to July 27 raised their inflation forecasts for 39 of 50 major economies for this year compared with April, with many citing effects from the war. They also cut growth forecasts for 32 of them.
It was roughly the same proportion on the inflation view for next year, with 37 upgrades. But there were fewer growth downgrades, 21.
Hostilities in a region crucial to the world’s oil supply briefly pushed crude prices back above $100 a barrel last week. While energy prices eased after Washington paused its two-week campaign of air strikes on Iran on Saturday, oil is still over 20% higher than before the war began in late February.
“The market and some of our colleagues are probably underestimating the persistence of inflation,” said Claudio Irigoyen, global head of economics at Bank of America Research, who called the initial impact from the war “a mild stagflationary shock.”
“The inflation outlook has to do nowadays with one important thing…the Iran war, because the price of oil can continue climbing higher. Is it going to go to $120, $150? Nobody knows. But I don’t think you’re going to have a significant reduction in oil prices,” Irigoyen added.
Inflation forecasts were raised for 17 of the 21 advanced economies surveyed, led by revisions for European countries, Australia and New Zealand, although changes were mostly marginal.
Government bond yields – sensitive to inflation expectations – are also ringing alarm bells. U.S. 10-year Treasury yields are near their highest since Donald Trump took over as U.S. president for his second term, despite three interest rate cuts since then.
THE GREAT GROWTH DIVIDE
Artificial intelligence-related spending worth hundreds of billions of dollars is helping a handful of economies to grow strongly and has kept global growth forecasts steady across multiple quarterly surveys. The median was for 2.9% growth this year and 3.1% in 2027, unchanged from April.
“It’d be interesting to see where the global economy would be if we didn’t have this wave of spending by large tech companies on AI. I suspect we’d be talking a much weaker economy globally, not just in the U.S.,” said Douglas Porter, chief economist at BMO Capital Markets.
Growth forecasts for the world’s two biggest economies, the U.S. and China, leading the AI investment boom, were unchanged from the respective 2.2% and 4.6% predicted three months ago.
South Korea and Taiwan, both benefiting from the AI wave, led the GDP forecast upgrades for 2026.
“A bright spot in many Asian economies, especially in Korea and Taiwan, is AI-related investment,” noted Frederic Neumann, chief Asia economist at HSBC.
“Look a little closer, though, and behind the façade the structure is a little more brittle than meets the eye. Much activity is driven, impressively and relentlessly, by the boom in AI hardware – but it is a boom that is narrowly based, benefitting the few and masking stagnation elsewhere.”
Nearly every other economy got a downgrade for 2026, led by Kuwait, Bahrain, Qatar and Saudi Arabia, whose economies have been directly hit by the conflict in the region. Those economies are expected to rebound next year.
The euro zone economy was expected to grow 0.5% this year, almost half the 0.9% predicted in April, but was forecast to more than double to 1.2% in 2027.
(Other stories from the Reuters global economic poll)
(Polling, analysis and reporting by the Reuters Polls team in Bengaluru and bureaus in Buenos Aires, Cairo, Istanbul, Shanghai and Tokyo; Additional reporting by Anant Chandak; Editing by Ross Finley and Chizu Nomiyama )
