The current global economy requires navigating a dense "fog of war,” a metaphor made more literal following the resumption of military operations in the Gulf, which has renewed concerns over global energy supplies, said Gilles Moëc, chief economist at Axa Investment Managers. While energy markets have shown initial resilience, the convergence of geopolitical tension, entrenched inflation and a structural shift in the technology sector is reshaping the macro trajectory.

Energy markets and the price of conflict

The resumption of hostilities in the Gulf has introduced a fresh layer of uncertainty, yet oil markets have remained surprisingly contained. Brent futures are currently trading slightly below $80 for the September contract (see chart 1), returning to their mid-June levels despite a two-week period of volatility during which some market participants had bet on a complete normalisation of prices. Projections suggest oil could move back towards $70 by the spring of 2027. “There is no reason to rewrite entirely our scenario,” said Moëc in a webcast on 9 July.

However, the outlook for gas is more concerning, particularly for Europe and the tech-heavy economies of Eastern Asia. Gas prices have risen by roughly €8 per megawatt-hour, and unlike oil, the market expects prices to plateau until the winter of 2026-2027 as operators are scrambling to replenish low inventories.

The end of central bank forward guidance

Rising energy uncertainty is also complicating the outlook for central banks, which are already struggling to balance inflation and slowing growth. The ECB is expected to reach 2.50% (see Chart 2), leaving both major economies in clearly restrictive monetary territory—a profound change that the equity markets have yet to fully digest.

Across the Atlantic, the Federal Reserve has maintained a hawkish stance as it grapples with “entrenched” core services inflation that remains stuck above 3.5% (see Chart 3). Since February, market expectations have shifted from counting on two rate cuts to anticipating at least one further hike, representing a net tightening of 75 basis points for the year. While job creation appears to have bottomed out, it remains solid enough to deter immediate rate cuts, even if extreme wage pressure has subsided.

A significant shift is occurring within the world’s major central banks, where the era of clear forward guidance appears to be over. “Kevin Warsh has managed to kill entirely forward guidance,” said Moëc. “It means that the very latest data flow becomes even more important.”

AI: Breaking the tech deflation cycle

For decades, the global economy benefited from steadily falling technology prices, but that cycle has now been broken. Driven by the AI investment boom, the price of hardware has risen by around 10% since 2020, following a 30% decline in the preceding thirteen years.

Memory chip prices have tripled or quadrupled amid surging AI demand. Supply is also highly concentrated, with six companies controlling around 95% of global DRAM and NAND production (see Chart 4). According to Moëc, this technology-driven inflation is expected to lift US consumer prices by between 0.2 and 0.6% in 2026, impacting everything from iPhones to electric cars. These products are not solely sold in the US. "This is going to have an impact at the global level," said Moëc.

According to Moëc, this has created a K-shaped investment landscape, with tech accounting for two-thirds of US non-residential investment (see Chart 5), while non-tech investment remains 11% below its pre-pandemic level.

Germany embraces elements of the Swedish pension model

While much attention is focused on Brussels, Moëc stressed that the most critical economic decisions in Europe are currently being made in national capitals, with Germany leading a major structural overhaul.

Berlin has committed to a massive fiscal push for infrastructure, totalling 10% of GDP over ten years. Beyond spending, the German coalition has introduced a package aimed at greater labour-market flexibility and a landmark pension reform that adopts the Swedish model of a capitalisation pillar. “The Pension Commission recommends managing these savings to maximise potential income for savers, while taking risk into account,” added Moëc.

Political stakes ahead of the 2027 elections

These structural shifts are being implemented against a backdrop of significant political risk. In Germany, mainstream parties are currently polling below the combined total of the extreme right and left, making upcoming state elections in Saxony-Anhalt in September a vital test for the government’s “last-minute” solutions.

The success or failure of Berlin’s package in swaying voters away from populist parties will likely set the tone for the rest of Europe. With four major Eurozone economies—Poland, Spain, Italy and France—facing general elections in 2027, the ability of mainstream platforms to fine-tune their economic narratives in response to current inflationary and energy pressures will be decisive for the continent’s future.

Together, these trends suggest that policymakers and investors alike are entering a period in which geopolitical tensions, structural inflation and political uncertainty are likely to matter more than traditional business-cycle dynamics.