Scenario Eco - Prolonged strains amidst limited growth engines

Scenario Eco – Societe Generale
Michala Marcussen, Societe Generale group Chief Economist
June 2026
Prolonged strains amidst limited growth engines

The conflict has proven prolonged, why are energy prices not higher?
The Middle East conflict entered its fourth month in June, but energy prices have so far in the second quarter of 2026 proved lower than many had feared.
The fact that the crisis has entered a less intense phase with ongoing hope for a peace agreement between the US and Iran is no doubt part of the explanation.
Demand, moreover, has also been softer. Airlines, for example, have cut back routes due both to prices pressures and supply shortage fears.
More fundamentally, the World enters this second energy crisis in just 5 years with a higher level of inventories and greater diversification of supply. Since Russia’s invasion of Ukraine in 2022, Europe, in particular, has made substantial advances on this front and also seen greater electrification on the demand side.
This should not be cause for complacency. The risk of supply shortages increases with each reduction of inventories, and risk around the conflict remain. Moreover, in a world shaped by greater geopolitical risk, continued investment in resilient energy systems has only become more critical.

How long can resilience last?
The resilience that has shaped the global economy in recent years, be it to tariff shocks, energy crisis or geoeconomic fragmentation is being eroded.
Economic forecasts, including our own, has seen yet a downward revision from the conflict in the Middle East and global resilience is increasingly at risk. Households are under pressure from higher energy costs, and this at a time when there is ample evidence of softer labour markets across the major economies. The resilience of US AI investment, one of the few global growth engines, is also being tested with elevated costs and tighter financial conditions.

Will central bank rate hikes tip the economy into recession?
Lacklustre growth dynamics with higher headline inflation prints has put central banks on both sides of the Atlantic in a difficult position. Following a meeting-to-meeting and data dependent approach thus becomes critical. Should central banks respond pre-emptively to higher headline inflation, without clear evidence of second round effects materialising, then downside risks to growth would clearly increase. It is worth recalling, moreover, that the already elevated level of market interest rates means that the bond markets are already doing part of the job is tightening financial conditions.