The global economy has shown surprising resilience despite the Iran conflict entering its fourth month. Goldman Sachs chief economist Jan Hatzius described the world economy as currently in a “sustainable” phase, supported by high global oil inventories and the boom in artificial intelligence (AI) technology that has driven stock markets to record highs.
Despite the closure of the Strait of Hormuz, the surge in crude oil prices has not been as bad as previously predicted. In addition, the airline sector has managed to adapt to the jet fuel shortage by reducing non-critical routes, a move that is considered “demand-killing” without a major economic impact on mainstream consumers.
However, Goldman Sachs remains cautious, placing the risk of a recession at 5% higher than pre-conflict levels. Factors such as continued increases in gasoline prices, slowing wage growth, and reduced cash flow from tax refunds are expected to weigh on consumer spending in the near term.
On the positive side, the probability of a US recession over the next 12 months has dropped to 25% from 30%. This was driven by strong labor market data, including 115,000 jobs created in April and private domestic sales remaining strong despite headline first-quarter GDP figures that were below expectations.
Hatzius warned that AI productivity carries complex side effects, including the potential for reduced job creation and inflationary pressures from rising prices for software and electronics. Investors are now looking ahead to consumer and wholesale inflation data due out this week for further clues on the direction of the economy.
