The world economy: A tale of two shocks

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The launch of hostilities by the US and Israel against Iran back in February stoked fears of a destabilised world economy. This as it became clear that a narrow waterway could be a gamechanger no one saw coming.

The closure of the Strait of Hormuz was widely expected to tighten financial conditions, drive up oil, gas and fertiliser prices, and elevate inflation.

However, five months into the conflict and halfway through the year, a less dreadful picture is emerging.

All indications are that the global economy, despite sporadic volatility, is coping better than anticipated.

Read:

Hormuz tensions put commodity supplies at risk far beyond oil
Trump’s war means higher global interest rates for years to come

According to the International Monetary Fund (IMF), global growth in the first quarter of 2026 came in at 3% on a quarter-over-quarter annualised basis, exceeding expectations. It did however slow from the 3.8% recorded in the last quarter of 2025.

Global growth is now projected to be 3% in 2026 and 3.4% in 2027.

In sub-Saharan Africa, growth will vary from country to country with the region expected to remain broadly stable at 4.3% in 2026.

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Nigeria is projected to grow at 4.1% and South Africa at 1.1%.

Global headline inflation rose for a third consecutive month year on year in May, breaking the downward trend that has been in place since the start of 2024.

Inflation dynamics have been disproportionate across countries and are expected to remain that way as a function of labour market conditions and differences in exchange rate passthroughs amongst others.

Headline inflation is projected to rise to 4.7% from 4.1% in 2025 driven by higher food and energy prices.

World trade volume growth is expected to slow to 3.5% in 2026 from 5% in 2025.

The buffers

Countries deeply connected to the technology value chain have fared better than those who are not. The positive technology shock was felt by Korea, Thailand, Malaysia and Taiwan – the top four net exporters of AI-related hardware.

These economies recorded positive surprises in the first quarter of the year, with an average seasonally adjusted annualised surprise of 4.4 percentage points. The rest of the world’s remaining countries averaged -0.3 percentage points.

Read: IMF says AI helps offset war-driven slowdown but sees risks

On the commodity front, expectations of elevated oil prices for a longer period have not materialised given that some 20 million barrels of crude oil and refined products a day, a fifth of global consumption, were cut off.

At its peak, Brent crude hit nearly $120 a barrel before settling in a range of $90 to $100 a barrel.

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Fears were that the oil price would mirror that of 2008 when it peaked passed $140 a barrel or the 2022 peak when Russia invaded Ukraine.

According to the IMF, in the March to May period, the negative effects were partially offset by inventories and demand destruction with many economies turning to coal or renewables for their energy needs.

Read/listen:

Goldman says Brent could top $120
Fresh Iran conflict fuels oil price spike
Trump’s war means higher global interest rates for years to come

Other notable buffers included Russia, Venezuela, Guyana and the US, which together plugged the gap, raising production by nearly two million barrels a day while Gulf producers redirected some supply.

The UAE relied on its Fujairah port, while Saudi Arabia used its pipeline to the Red Sea port of Yanbu to send oil out.

In this episode of The Business of Africa Podcast, we review the first half of the year with founder of Just One Lap, Simon Brown, host of the MoneywebNOW podcast.

He contends that while the world economy has been resilient thus far, the road ahead will be tough on the consumer.

The resumption of tensions between the US and Iran as well as renewed talks of tariffs are bound to compound inflationary pressures and dent growth.

The world economy may have thus far proven resilient but the question remains, for how long?

* This episode was recorded as tensions between the US and Iran escalated elevating the oil price to above $100 a barrel.

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