Downgrade Parade: Conflict Is Hitting the Forecasts | S3 E141 | 04-27-26

The global economic outlook is starting to shift as the ongoing Middle East conflict and continued disruption in the Strait of Hormuz raise concerns about slower growth and higher inflation.

In this episode of Markets with Megan, Megan Horneman takes a look at the latest economic downgrades from major global agencies, including the IMF, the United Nations Economic and Social Commission for Asia and the Pacific, and Germany’s economic ministry. She explains why elevated energy prices, supply chain disruptions, and rising inflation pressures could create challenges for central banks and add volatility to markets.

In this episode, Megan discusses:

• Why the IMF downgraded global growth and raised its inflation forecast
• How energy prices and supply chain disruptions are affecting the outlook
• Why Asia-Pacific economies may be especially exposed
• What Germany’s downgraded growth expectations signal
• Why inflation pressures may show up with a lag
• Why equity markets may be underpricing the risk of prolonged volatility

Equities remain near record highs, but earnings expectations have not fully adjusted for the potential economic impact of a prolonged conflict. Megan explains why investors should stay cautious and be prepared for more market volatility ahead.

For more Markets with Megan episodes, visit: https://marketswithmegan.fm

#MarketsWithMegan #MarketVolatility #EconomicOutlook #Inflation #GlobalEconomy #StraitOfHormuz #OilPrices #EnergyMarkets #MiddleEastConflict #FederalReserve #InterestRates #EquityMarkets #InvestmentOutlook #IMF #Markets

https://youtu.be/H9HmwLX9y24

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Transcript

Middle East Conflict Hits Markets

Megan Horneman 0:00

The downgrade parade is starting due to the ongoing conflict in the Middle East. It is Monday, April the 27th, and this is Markets with Megan. If you like this podcast, you can subscribe, hit the alarm bell, share it with your friends, family, colleagues, anybody who's interested in the economic data that you see, those headlines that drive the market activity on a regular

IMF Downgrades Growth Outlook

Megan Horneman 0:20

basis. Today we wanted to discuss some of the economic downgrades that we're getting from major agencies that have highlighted the fact that because the conflict in the Middle East has gone on longer than expected and it has created this ongoing disruption in the Strait of Hormuz, that there is a downside risk to economic growth and an upside risk to inflation. Let's start with the IMF, the International Monetary Fund. They came out to release their April outlook and compared to their January forecast, they downgraded global growth to 3.1% this year from 3.3%, but they upgraded global inflation for this year to 4.4 versus 3.8. That's a pretty big move. It's interesting to note that they were in, they were actually ready to increase global growth expectations for this year because of the ongoing spend in AI, because of the accommodative monetary policy, as well as the easing trade tensions. But because this conflict has gone on,

Asia And Europe Cut Forecasts

Megan Horneman 1:24

they've actually flipped that and now downgraded economic growth and increased inflation. It has all to do with the fact that energy prices are much higher, they've continued to stay higher, and this ongoing supply chain issue is going to put central banks in a situation where they actually may have to raise interest rates. They did outline a very adverse scenario, which, if this continues into the second half of this year, we could see that global growth could go down to you know two and a half percent and inflation up as high as 5.4%. It gets a little bit more um dire if you if this continues into 2027, which is not our expectation. The United Nations Economic and Social Commission for Asia and the Pacific, they also put out some warnings because remember, Asia and the Pacific is very subject to this supply chain disruption in the Strait of Hormuz. The China specifically gets a lot of their energy products from Iran and through that strait. So they downgraded growth for those economies in that region from 4.6 last year to 4% this year, and they increased inflation from 3.5 to 4.6 this year. Germany's economic ministry also cut their expectations for growth basically in half for both 2026 and 2027, and they expect inflation to rise from 2.2% last year to 2.7% this year, and then 2.8% next year.

Inflation Signals And Stock Rally Risk

Megan Horneman 2:55

So again, this is just some initial signs we're seeing. The biggest concern we have on this prolonged impact is the fact that the Strait of Hermuz still remains shut. We are still seeing energy prices elevated. We have seen some initial reports in the economic data we've gotten from ISM. When you look at the services and manufacturing and the prices paid component being very elevated, we do think this can filter into and spill over into the other inflation reports that the Fed's taking a close look at. But it's not always going to happen right away. This does have a lagged effect. So this could be an issue we have for the next couple months. That's why we're still cautious with this equity rally, equity sitting at a record high. They haven't changed any expectations for earnings and they didn't price in that this would be a prolonged um effect. So we do think there is some room. Once we get out of this earnings season euphoria, there could be some downside for equity.

Volatility Ahead And Where To Follow

Megan Horneman 3:50

So stay tuned. Be ready for some volatility, and we have cash to put to work when we see that time. Thank you very much. And if you want a history of our podcast, you can do marketswithmegan.fm. Thank you.