Global Growth Faces an Energy Test

May 14, 2026

AI Summary

5 min read

Morgan Stanley's Global Chief Economist Seth Carpenter outlines the firm's mid-year global economic outlook, centering on whether an ongoing energy shock—driven by oil disruptions—remains manageable amid US-led momentum from AI investment and consumer spending. The baseline view stays constructive on growth, but the shock raises inflation, tempers expansion, and widens outcome risks, including recession if supply issues persist.

Baseline Growth Forecast

The forecast projects global real GDP growth at 3.2% in 2026 and 3.4% in 2027, down slightly from 3.5% in 2025. This reflects a modest slowdown this year followed by stabilization and recovery. For the US, growth is seen at 2.2% in 2026, rising to 2.5% in 2027—up from 2.1% last year—supported by AI-related capital spending and consumer strength, particularly from the wealthier top end of the distribution. This US momentum is expected to broaden into other business investment over time, underpinning global foundations into the second half of the year.

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What you'll learn

1 (00:00) **Mid-Year Global Economic Outlook**
2 (01:09) **Oil Price Risks and Scenarios**
3 (02:04) **Regional Exposure to Energy Shock**
4 (02:51) **US Growth Driven by AI and Consumer**
5 (03:38) **Inflation and Central Bank Outlook**
6 (04:43) **Global Growth Foundation**

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Show Notes

Our Global Chief Economist and Head of Macro Strategy Seth Carpenter gives his midyear outlook, highlighting why AI investment and U.S. consumers remain key growth engines amid energy shocks.

Read more insights from Morgan Stanley.

----- Transcript -----

Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research.

Today, I want to talk about our mid-year outlook that was just published.

It's Thursday, May 14th at 10am in New York.

Oil, AI, and the consumer now sit at the center of our global economic outlook. With AI and the consumer driving economic momentum in the U.S., the key question is whether the energy shock stays manageable or changes the path for inflation, central banks, and recession risks.

We have had and maintain a fundamentally constructive view on global growth, but the energy shock brings unusually high uncertainty. It boosts inflation, it weighs on growth, and it widens the range of outcomes. We forecast global real GDP growth at 3.2 percent in 2026 and 3.4 percent in 2027. That is relative to about 3.5 percent in 2025.

So, in our baseline, growth slows modestly this year and then stabilizes and recovers. Writing a forecast is always hard but knowing what to assume about oil prices is even harder than ever now. Our base case assumes that crude returns to about $90 a barrel by the end of this year and declines further in 2027.

If, and I do mean if, that happens, the global economy can likely absorb the shock. But if the current situation persists and we do not see a normalization of shipments of oil, it could spell recession. That scenario probably sees oil prices surge through $150 a barrel, but more importantly, we could shift from a price shock to a volume shock.

The big risk is physical shortages and supply chain disruptions because it's not just energy, it's also petrochemical inputs to manufacturing and other items. Higher prices slow activity; shortages can stop it.

Exposure to the energy shock differs sharply across regions. Among the major economies, China looks the least exposed. Europe is the most exposed, and the U.S. sits in between. China built up substantial stockpiles of oil, and part of why the global oil market has not seen higher oil prices so far is that China has cut back on those imports dramatically.

Europe, on the other hand, typically faces faster energy passthrough, meaning energy prices show up much more quickly in household bills, business costs, and ultimately inflation. And Europe is a net importer of energy, so the consideration goes beyond oil to include natural gas.

The U.S. is a net exporter of petroleum products, but U.S. consumers will feel the pinch at the gas pump.