Global Navigator from KPMG Economics
Shocks upend global economy.
The Americas are insulated. Asia is exposed.
April Edition
April 13, 2026
This edition of Global Navigator focuses on the severe economic and financial repercussions stemming from dual shocks: the war in Iran and a new wave of trade policy uncertainty. The result is weaker economic growth and higher inflation than we expected for the global economy in March
The long-term effects of disruptions and damages to energy infrastructure are roiling supply chains as well is reshaping behaviors of firms and households. Scarcities are prompting hoarding and rationing. The crisis is spilling into financial markets, tightening credit conditions and threatening international capital flows. Central banks are on high alert; the war on inflation has not been won, while capital flows post crisis are likely to be constrained.
Four big themes
- Uncertainty looms large…again. Dual shocks from the Iran war and US trade policy uncertainty downgraded the global outlook. We expect significantly slower growth and higher inflation.
- Asia is hit hardest, while the Americas experience milder effects. The energy shock affects regions unequally. Asia is the most dependent on energy from the Middle East; many countries are already rationing.
- The energy shock is spilling into supply chains. The Strait of Hormuz moves more than oil: food, feed, fertilizer, helium, and aluminum. Disruptions are roiling supply chains and triggering rationing across many emerging markets.
- Financial market spillovers have far-reaching effects. We do not expect a repeat of the 1970s, but the higher inflation associated with oil prices and their spillover effects are causing financial market volatility and pushing bond yields up. International capital flows will be impacted, as growth dims.
Uncertainty looms large…again
The Iran war and closure of the Strait of Hormuz triggered an energy price spike and renewed uncertainty. The shock collided with fresh US trade-policy volatility after the Supreme Court overturned emergency tariffs. The administration has fast-tracked investigations into new, more durable tariffs by August, while using temporary measures to keep many emergency tariffs in place.
Those shifts are adding to the trade policy uncertainty regarding the United States-Mexico-Canada trade agreement (USMCA), which is due for renegotiation this summer. At least some within the administration would prefer bilateral instead of a multilateral agreement in its place.
The war’s costs will linger even if the strait fully reopens tomorrow. Energy infrastructure has been damaged, and rebalancing global oil supplies will take weeks to months. Losses are also being compounded by Ukrainian strikes on Russian oil infrastructure. Financial markets have been slow to account for that blow.
Measures of uncertainty have soared, along with geopolitical threats, both of which act as a tax on economic activity. Geopolitical risk has reached its fifth highest level on record. The data go back to1985 and could move higher before falling in the weeks and months to come. (Chart 1).
We now expect global growth to slow to 2.8% on a purchasing power parity basis in 2026, well below the 3.4% we saw in 2025. Prospects are better in 2027, as oil prices recede from recent highs and supply chains recover. Global growth is forecast to rebound 3.3% in 2027. Those forecasts are materially lower than our February forecasts.
Global inflation is expected to surge to 4.3% in 2026 and cool to 3.7% in 2027. The jump in inflation is nearly a percentage point above the 3.4% pace in 2025. Inflation will get worse before it gets better.
The key forecast assumptions are:
- Brent crude oil averages $100 per barrel in the second quarter, before returning to prewar levels in early-2027.
Supply chain stress will remain elevated, though below pandemic-era peaks.
Equity market volatility reaches heights not seen since the Russian invasion of Ukraine. Volatility is less than we saw entering the pandemic and the lockdowns that followed, but that provides little solace for investors, who abhor uncertainty.
Downside risks remain, given ongoing threats to the Strait of Hormuz and the tolls the Iranian Revolutionary Guard Corps are extracting. If the strait stays closed for three months – we are nearing the halfway mark – Brent could touch $200 per barrel. The effects are nonlinear, amplifying rationing and hoarding and further roiling supply chains. The blow to demand would likely outweigh the price boost, raising the risk of a scarring increase in unemployment.
In July, the first review of the expiring United States-Mexico-Canada Agreement (USMCA) begins. It is the primary mitigator on tariffs across all three countries; a breakdown could lift effective tariff rates by multiple percentage points (possibly three points each for Canada and Mexico).
Renegotiations will likely center on geopolitics and national security, as the current agreement covers energy trade between the three countries. The base case is a muddle-through extension, but a shift to bilateral deals would be especially costly for autos, which are now seeking tariff waivers to blunt rising foreign competition. Ironically, today’s tariffs advantage some importers over domestic producers.
Chart 1: Geopolitical risk has spiked
World Geopolitical Risk Index, four-week moving average, 1985-2019 = 100
Asia is hit hardest, while the Americas experience milder effects
Much of the crude oil that moved through the strait was bound for Asia, leaving the region more exposed than others. China, the world’s largest oil importer, is insulated near term with at least 200 days of reserves and has invoked export controls to preserve energy supplies.
India and Thailand are among the most affected, given heavy reliance on strait-sourced energy. Liquefied petroleum gas (LPG) used in household cooking is in short supply. Restaurants have closed to conserve LPG.
Rationing has started in India, Indonesia, Bangladesh, Myanmar, Sri Lanka, Nepal and to a lesser extent in Vietnam and Cambodia. Work-from-home mandates are spreading; schools, government offices, and some businesses have moved online or shuttered. The Philippines have declared a national emergency.
Europe is less exposed but still feels spillovers after diversifying its supply with the Russian invasion of Ukraine. Irish petrol stations are reporting shortages. The bigger risk is natural gas, which has had global prices double. US export capacity is maxed out, and a major Qatari facility was destroyed in the war. A three-month blockade could triple gas prices.
The Americas are better positioned, with four of the world’s top exporters in the region. The US leads global oil and gas production but drilling and refining are at capacity. Canada, Brazil and Mexico follow, yet each has limited ability to ramp output quickly.
Prices would need to remain elevated for a couple quarters to entice investment in new wells and refining capacity. Producers need confidence that production will remain profitable for years.
The war may accelerate efforts to expand Middle East bypass pipelines, though those have endured attacks as well. Look for investment in renewables, next-generation nuclear and conservation to loosen the Middle East’s chokehold on oil supplies.
The US eased sanctions on Iranian, Russian and Venezuelan oil. That did less to boost supply than line those governments’ coffers. Much of the crude was already on route to buyers willing to take the risk of buying discounted sanctioned oil. Sanctions are rarely fully enforced to avoid even larger price spikes.
The energy shock is spilling into supply chains
The Strait of Hormuz carries a fifth of the world’s oil and natural gas. Roughly half of crude, and none of refined products, is getting through. That is driving spot prices for jet-fuel and diesel higher. Expect a risk premium to linger in West Texas Intermediate (WTI) and Brent for months, if not quarters.
That persistence of higher prices is driven by several factors:
The strait is mined so clearing the area will be slow and dangerous.
Energy infrastructure that was damaged or destroyed will take up to five years to repair.
Idled pumps are slower to turn on than turn off.
Demand will remain high as countries rush to rebuild reserves.
The strait’s closure is creating scarcity, a condition that can trigger escalating behavior changes. The longer the shock lasts, the more competitive firms and households will be for limited resources.
Efforts to fill the demand gap will likely fall short. A coordinated release of 400 million barrels from the emergency reserves of 32 countries by the International Energy Agency will take months to disperse. Worse yet, refining capacity is limited, and spare production capacity remains stuck in Saudi Arabia.
Spillover effects are already significant. Higher jet-fuel prices are lifting airfares and causing carriers to scale back operations. Surging diesel is boosting shipping costs that feed into the price of almost everything. Bunker fuel, which propels ships, and rising insurance costs add insult to injury.
All of this comes on top of rising petrol prices and commuting costs worldwide. Going back to the 1960s, the March jump in prices at the pump was the largest single-month increase on record in the US.
About a third of seaborne fertilizer transits the strait. Delayed planting would set up food shortages at harvest. Historically, a 10% rise in energy prices translates into roughly a 6% increase in food prices.
Oil-importing emerging markets, and those with high inequality, are being hit hardest. Civil unrest is a major concern.
Helium for semiconductor fabrication is another casualty. Producers are prioritizing high value-added memory chips for data centers and AI over other chips, reviving shortages reminiscent of the pandemic.
Prices will rise for downstream oil-based products. These include polypropylene plastics (tires, packaging, medical equipment, textiles, furniture, drones); lubricants (petroleum jelly, hydraulic fluids); and construction materials used in roofing and roads.
Financial market spillovers have far-reaching effects
The oil crises of the 1970s offer a glimpse of how markets may react. The painful stagflation of that era triggered one of the most volatile episodes in modern financial history, with several key impacts:
- Equities: Inflation eroded real earnings, driving down valuations and sending stocks lower.
- Fixed income: Real returns turned negative, and government bonds stopped being a reliable inflation hedge for investors.
- Currencies: Oil importers’ currencies weakened as energy-import bills surged.
- Monetary policy: The Fed was slow to react, often bowing to political pressure to soothe the labor market before inflation was tamed. Inflation came roaring back, squeezing margins and prompting further layoffs.
Only when the Fed prioritized inflation-fighting did the cycle break. The US endured back-to-back recessions in 1980 and 1981–82 before the back of inflation was broken. Growth resumed, setting the stage for longer expansions without searing bouts of inflation going forward.
Today’s price shock is less extreme, but still painful. Higher government bond yields (Chart 2) stemming from rising inflation expectations and risk premia have affected most major economies. Some 10-year yields touched increases of more than 100 basis points since the conflict began; many have retraced.
Recent US Treasury auctions have suffered from weak demand amid heightened volatility, driving up borrowing costs. That is translating to higher rates for corporations and consumers. Combined with trade and input-price uncertainty, merger and acquisition activity is drying up.
Outward capital flows from the Middle East, especially to the US tied to tariff negotiations, are at risk. Funding for startups and major tech projects may not come to fruition, as capital is redirected to rebuild war-damaged infrastructure at home.
Emerging markets bore the initial brunt. China’s equities were an early bright spot but faded as the strait stayed closed. Brazilian and Saudi markets have outperformed, while India, Vietnam, and the United Arab Emirates, among others, sold off. Many have pared some losses since the immediate aftershock of the closure.
Chart 2: Government bond yields jumped in March 2026
10-year government bond yields
The current crisis represents a test of the global economy’s resilience.
Benjamin Shoesmith
KPMG Senior Economist
Bottom Line:
The current crisis represents a test of the global economy’s resilience. The confluence of geopolitical conflict, energy shock and trade fragmentation moves the world further from the era of stability and low-cost inputs. Strategic decision-making must now prioritize supply chain security, balance sheet strength and agility over efficiency.
Global Forecast: Regional Outlook
Growth in Asia is forecast to decelerate to 4.4% in 2026 and 4.6% in 2027, from 5% in 2025. Central banks may need to hike to contain inflation while monitoring demand destruction.
Growth in Europe is forecast to slow to nearly 1% in 2026 and 1.6% in 2027, from 1.7% in 2025. With inflation pressures rising, the Bank of England and ECB are likely to rate hikes. The normalization of the last few years is over.
Growth in the Middle East and Africa is forecast to drop to 2.9% in 2026 from 4.2% in 2025 before rebounding to 4.5% in 2027. War damage, a potential refugee crisis, and the human costs are rippling across the region. Egypt is particularly at risk amid force majeure declarations by major oil and gas providers. After recent IMF support, Egypt faces renewed inflation and possible additional aid needs.
Growth in North America is forecast to slow to 1.7% in 2026 and 2% in 2027, from 2% in 2025. The US outlook was downgraded on the Iran war. If the closure persists and the Fed hikes, other countries may follow suit to defend currencies and contain inflation. Mexico has shifted from steady cuts to a more cautious stance, potentially delaying cuts into 2027. The Bank of Canada is expected to hike early in Q2 in response to price pressures.
Growth in Oceania is forecast to rise to 2.2% in 2026 and 2% in 2027, from 1.8% in 2025. Australia represents a downside risk as it imports much of its refined fuel from Asia, which receives crude oil from the Middle East. The Reserve Bank of Australia already hiked in Q1 and is now expected to hike again.
Growth in South America is forecast to slow to 2.1% in 2026 and 2.7% in 2027, from 3% in 2025. Net energy exporters will benefit fiscally, but not enough to shield consumers. Higher cooking-oil prices and weaker prospects for summer crop yields are worrisome. Brazil’s central bank is expected to slow the pace of rate cuts, while Chile, the most exposed country in the region, may need to weigh hikes.
Global Outlook Forecast - April 2026
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