Scenario Eco - Crowding out headwinds

Scenario Eco – Societe Generale
Michala Marcussen, Societe Generale group Chief Economist
September 2026
Crowding out headwinds

Bond yields increased substantially over the summer, what’s driving this?
Three major factors have driven bond yields higher over recent weeks.
Top of the list is renewed tension on energy prices, driven by the US-Iran conflict. The concern is that higher energy costs will trigger second round effects on inflation.
Second, major economies remain remarkably resilient. Investment demand is still strong, particularly in AI, defence, and energy. This increases credit demand and reinforces expectations that central banks may keep policy rates tighter for longer.
Finally, we observe that bond markets are increasingly concerned by high government debt levels in several major economies.
Can the real economy remain resilient with higher energy and bond yields?
Our view is that some of the global resilience is set to fade.
Consumers appear increasingly fragile. Each new round of energy price spikes takes away purchasing power while higher interest rates raise the cost of financing both for consumer goods and for housing. Many firms, moreover, are becoming cautious on new hires.
A key question for the equity markets is whether the returns from the current wave of investment, and not least in AI, will be sufficient to justify a higher cost of capital.
Finally, a busy electoral agenda, not least with, US mid-terms in November, French Presidential elections next spring and ongoing German state elections add political uncertainty to the headwinds.
What could drive a new impetus for the global economy?
Lower energy prices would offer welcome respite to consumers and corporates alike and would also help ease some of the upward pressure on bond yields.
The near-term energy outlook is highly dependent on geopolitical events, but it is worth recalling that investment in renewables and nuclear is one of the key pillars of the European Competitiveness Compass. The less dependent Europe becomes on fossil fuels, the more resilient its economy will become.
Europe’s strategic investment agenda, including digital and defence in addition to energy, requires more than EUR 1 trillion of annual investments. Unlocking this potential requires reform, be it to stimulate investment demand or to secure the right type of financing.
Looking around the World today, Europe clearly has one of the greatest upside potentials. The challenge now is to deliver the measures needed to unlock it.