The Weekly Briefing from Capital Economics

The latest Weekly Briefing covers the global outlook, financial markets and energy. Group Chief Economist Neil Shearing explains what the ceasefire in the Middle East means for growth and inflation, how quickly the world economy could recover if it holds, and what happens if fighting resumes.
James Reilly, a Senior Economist on our Markets team, joins to run through updated forecasts for equities and bonds, why markets have held up relatively well, and why the stock market highs expected before the war now look out of reach.
Plus, in an exclusive clip from a recent client briefing, our Climate & Commodities team explain why restoring oil supply is not as simple as flicking a switch, and the constraints on refined product output.
Related 
Iran conflict: Global macro and market implications
https://www.capitaleconomics.com/key-issues/iran-conflict
Watch: How the Middle East conflict has changed the price outlook
https://www.capitaleconomics.com/events/commodities-drop-how-middle-east-conflict-has-changed-price-outlook
Mapping the next stage of the AI rally
https://www.capitaleconomics.com/publications/equities-focus/mapping-next-stage-ai-rally
Get trial access: https://www.capitaleconomics.com/solutions/subscription-products#trial-request

The AI hype cycle shows no sign of slowing. But how much are the hundreds of billions in investment actually boosting economies, and when will that spending translate into meaningful productivity gains?
In this episode, Senior Economic Adviser Vicky Redwood discusses her new report, 'How deeply is AI taking hold in the economy?', the latest addition to Capital Economics’ analysis of AI’s global impact. In conversation with David Wilder, she separates hype from reality, covering:
 Which economies are benefiting most from the global AI build-out 
 Why recent US productivity gains are evidence of AI’s impact 
 If the conflict in the Middle East could disrupt the AI rollout 
 Whether fears of an AI-driven jobs apocalypse are justified 
 What the Citrini note gets wrong about AI’s macro impact
Read 'How deeply is AI taking hold in the economy?': https://www.capitaleconomics.com/publications/global-economics-focus/how-deeply-ai-taking-hold-economy

Our updated macro and market forecasts assess the impact on growth and inflation – and the likely central bank response – under both baseline and adverse scenarios for the Middle East conflict. In the latest episode of The Weekly Briefing from Capital Economics, Group Chief Economist Neil Shearing discusses why the more benign scenario would deliver a negative but manageable shock to the global economy, while a more adverse outcome could tip it into outright recession.
Also on the show, Deputy Chief UK Economist Ruth Gregory explains why gilts have been the hardest hit among G10 government bonds as tensions have escalated. She explores the sharp shift in expectations for Bank of England policy and the underlying fiscal vulnerabilities fuelling market anxiety – including the risk of a change in government leadership.
Read our latest Global Economic Outlook: https://www.capitaleconomics.com/publications/global-economic-outlook/forecasting-through-fog-war-1

Pity the poor central banker. As energy prices surge, they are grappling with the trade-off between growth and inflation, while trying to communicate this all to markets without triggering an unwanted tightening in financial conditions.

At the end of an unusually busy week for policy meetings, Group Chief Economist Neil Shearing and Chief Global Economist Jennifer McKeown assess how central banks are managing this difficult task, and whether investors are right to position for rate hikes from some banks that only a few weeks ago were expected to ease policy this year.
In the latest episode of The Weekly Briefing, they talk to David Wilder about issues including:
How inflation risks in the global economy are crystallising as the conflict approaches its fourth week
What separates central banks, from the Bank of England and ECB to the BOJ, RBA and the Fed, in how they are likely to respond
Whether interest rate cuts would come back onto the table if the fighting were to end
Join our 26th March online briefings about our new macro and market forecasts: https://www.capitaleconomics.com/events/drop-global-economic-and-market-outlook-pricing-energy-shock

News of a record release of emergency oil reserves has quickly been overshadowed by images of tankers on fire in the Strait of Hormuz. Thirteen days into the conflict, tensions in the Middle East appear to be escalating rather than easing. What is the view from commodity and financial markets, and what could this mean for the global economy?
Capital Economics has modelled three scenarios to assess how oil and gas supplies and prices could evolve as the conflict unfolds, and what this might mean for global growth, inflation, central bank policy and financial markets.

In this special episode of The Weekly Briefing:
Chief Climate & Commodities Economist David Oxley discusses how our scenarios map out potential paths for oil and gas supply and prices, depending on the duration of the conflict and the extent of damage to production and infrastructure.
Group Chief Economist Neil Shearing explains how these scenarios could translate into different growth and inflation outcomes globally, and what they might mean for central bank policy — including what to expect from the upcoming meetings of the Fed, Bank of England, ECB and Bank of Japan.
Deputy Chief Markets Economist Jonas Goltermann explores how financial markets could respond, how far prices might rebound in the event of a ceasefire, and which trades may never fully recover.
Explore all our coverage of the conflict, including our scenarios here: https://www.capitaleconomics.com/key-issues/iran-conflict
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