Barclays Research has released a global economic outlook report, noting that despite the backdrop of geopolitical conflicts, inflation, and risks in private credit, the global economy continues to demonstrate resilience. This is primarily supported by a strong investment cycle and earnings growth driven by artificial intelligence. According to Barclays, market concerns during the first quarter centered on geopolitical tensions, oil prices, private credit, and AI-related capital expenditures. Despite a rapid repricing of short-term US Treasury rates last week, asset prices have so far reacted calmly, aligning with market expectations that the current conflict may gradually subside within weeks.

Under Barclays' baseline scenario, a US-Iran military confrontation is expected to impact inflation more significantly than economic growth. If projected oil price futures materialize, global economic growth is anticipated to face some pressure but should remain resilient overall, with global GDP growth forecast at approximately 3% for the year. In comparison, the US economy exhibits significantly stronger shock absorption capacity than energy import-dependent economies in Europe and Asia. A key factor is the expectation that the Federal Reserve will "selectively overlook" short-term inflationary pressures and avoid an overreaction.

Under the baseline assumption—where tensions de-escalate gradually and Brent crude averages around $85 per barrel—the bank projects global economic growth will remain at 3% in 2026. For a world economy that had hoped to move past last year's trade war impacts, this performance is only moderate. From another perspective, however, this outcome may still exceed some investors' expectations. A crucial support lies in the US economy; even if oil prices average around $85 per barrel in 2026, the impact on US growth is expected to be quite limited.

The report further highlights that Europe faces more pronounced impacts. Current expectations suggest Europe's real GDP growth path will flatten, with both headline and core inflation remaining elevated and government fiscal deficits widening further. Barclays has revised down its forecast for Europe's year-on-year economic growth in the fourth quarter of 2026 to 0.7%, and to 1.2% for 2027 (down from previous estimates of 1.2% for both periods).

Major Asian economies, including China, India, and Japan, are also expected to be affected. However, these nations are actively engaging in communication and coordination with Iran to ensure the safe passage of their vessels through the Strait of Hormuz. Data to date indicate that, despite tensions in the Strait, Iran's crude oil supplies to China have not yet seen substantial changes. China's refined oil pricing mechanism provides a buffer against the transmission of international oil price increases. Additionally, lower reliance on oil and gas, coupled with continuous improvements in renewable energy and electrification, enhances the overall resilience of the Chinese economy. China also maintains strategic petroleum reserves of approximately 1.2 billion barrels, serving as a significant risk buffer.

The US private credit sector does face some structural issues, particularly within the software industry. However, Barclays believes these risks are more likely to accumulate gradually, do not yet possess systemic characteristics, and are unlikely to substantially impact the US macroeconomic trajectory in 2026. Their potential effect is more akin to the market's concerns over commercial real estate (CRE) in 2023, which did not trigger macroeconomic consequences and remains far from the financial crisis of 2007-2008.

Since the beginning of the quarter, global markets have been under pressure due to energy shocks stemming from Middle East conflicts, weighing on both equity and bond markets. This shock coincides with a period of AI-driven earnings growth. Investors are advised to focus on structural "winners" while hedging against short-term macroeconomic and policy risks. Barclays' current baseline assumption is that the most extreme scenarios will not materialize, similar to the situation with trade issues in 2025. Although long-term effects may persist, a substantive easing of tensions would likely lead markets to look forward. Despite ongoing negative news in geopolitics, oil, and credit, Barclays maintains an overweight stance on US equities relative to European stocks.