Midyear 2026 global macroeconomic outlook: trying to move past the Middle East conflict

In this episode of Investments Unplugged, with the halfway point of the year fast

approaching, host Kevin Headland is joined by two guests—Global Chief Economist Alex

Grassino and Senior Macro Strategist Dominique Lapointe—who share their midyear 2026

global macroeconomic outlook.

Alex and Dominique recap the action-packed first half of the year, highlighted by the

unforeseen Middle East conflict that erupted in late February, and then lay out a “macro-to-

markets” roadmap of sorts for the rest of 2026 and into 2027. Among the timely, top-of-

mind topics they address are:

• Global growth resilience, despite Middle East conflict-driven energy shocks;

• Evolving global inflation risks, including mounting AI-related demand pressures;

• Policy implications for the U.S. Federal Reserve (Fed) and other major central banks;

• Portfolio positioning considerations across global equity and fixed-income markets.

Key topics & insights

1. First-half surprises: geopolitical turmoil, corporate earnings, and AI leadership

• The Middle East conflict has lasted longer than most observers expected, creating a

sliding scale of potential outcomes that investors have had to price in.

• Corporate earnings expectations and results rebounded quickly after some softness

seen in late 2025, helping to support U.S. and global markets.

• U.S. equities linked to AI have continued to outperform, with market leadership

reconcentrating around AI-/hardware-related themes.

2. Macro backdrop: resilient U.S. and global economies, uneven regional impacts

• Despite the Middle East conflict and resulting oil-price shock, the U.S. economy

appeared to navigate the first half with “relative ease” and notable resilience.

• Other regions’ economies are being impacted in different ways by the conflict,

depending on such factors as whether they are energy exporters or importers.

3. Canada: a low-growth environment, “recession-like” conditions open to debate

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• The guests argue that an economic recession tends to be broad-based with

widespread corporate layoffs—conditions they’re not seeing in Canada right now.

• However, the economy is indeed weak, characterized by slow growth, amid

structural issues (e.g., productivity), tariff after-effects, and cautious consumers.

• But a fragile economy doesn’t necessarily mean a lack of investable opportunities,

since the Canadian stock market isn’t perfectly linked to domestic growth.

4. Inflation: “rolling shocks” and new AI-driven inflation concerns

• Inflation can manifest as a series of rolling transitory shocks, potentially driven by

several forces (e.g., higher energy prices, trade tariffs, AI demand pressures).

• AI’s inflationary channel can take the form of various equipment-driven supply

shortages that can push the prices of goods up over multiple quarters.

• A specific risk scenario discussed: If the Strait of Hormuz remained closed until the

end of July, could the price of oil breach $110/barrel in the third quarter?

5. Central banks: a higher degree of uncertainty and narrower policy paths

• Fed policy in the coming months may face symmetric risks from either rate hikes or

cuts, with market expectations already having been whipsawed in recent years.

• The Bank of Canada has a different dilemma on its hands: balancing rising inflation

concerns against a softening domestic economy and labor market.

6. Equity positioning: try to stay invested while avoiding headline-driven reactions

7. Fixed-income positioning: keep it in the portfolio toolkit, manage duration carefully

Actionable takeaways for Canadian investors

• Don’t let macro and geopolitical headlines drive portfolio strategy decisions.

• Remain well diversified across asset classes, investment styles, and global markets.

• In the equity space, aim to distinguish between potential AI “winners” and “losers.”

• Use fixed-income allocations intentionally for portfolio ballast and diversification.

• Be cautious with long-duration bonds, consider favoring shorter durations.

• Canadian investors: Be alert to possible opportunities, even in a sluggish economy.

Links & Resources

• Listen to the episode: Investments Unplugged Podcast

• Learn more about Manulife Investments: Manulife IM Canada

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For informational purposes only. This episode does not constitute investment advice.

Please consult a qualified advisor before making investment decisions