Middle East conflict reignites inflation and slows growth, reversing earlier resilience in advanced economies.
Advanced economies, which showed resilience in 2025 despite a global trade tariff shock, now face renewed stagflation risks in early 2026. A fresh shock tied to the Middle East conflict is driving inflation higher while simultaneously slowing economic growth.
Earlier projections had pointed to faster growth and lower inflation for these economies following the initial trade disruptions. The shift underscores the fragility of the recovery amid geopolitical tensions.
Markets are closely monitoring central bank responses as policymakers balance inflation control with growth concerns.