Geopolitics, the main determinant of global economic risks: how does it impact inflation and growth?
War in Iran could be taking its toll on the world economy. Photo: EFE/EPA/ABEDIN TAHERKENAREH
TL;DR
- The global economy is at a turning point in 2026 due to geopolitical conflicts, which are now the main determinant of global risks.
- This shift is negatively impacting growth prospects, increasing inflation, and reducing the room for maneuver in economic policy.
- Global growth is projected to be 3.1% in 2026, with inflation reaching 4.4%, both revised upwards.
- Developed economies show weak growth, with notable deterioration in Europe, while the US shows a positive revision, and emerging economies face a downward adjustment.
- Latin America and the Caribbean are projected to grow at a moderate 2.3% in 2026, with mixed dynamics among countries.
- Colombia's economy is projected to grow at 2.3%, supported by private consumption and public spending, but lacks sufficient investment and remains exposed to external shocks.
- Geopolitical uncertainty has increased risk aversion, leading to volatility in stock markets and wider sovereign risk premiums, particularly impacting emerging markets.
- Financial conditions are tightening due to increased interest rates, wider spreads, and reduced global liquidity, making credit access more expensive.
- The deterioration of the macroeconomic environment could transfer to the financial system through a worsening loan portfolio quality and increased probability of default.
- International trade in services is a dynamic component of global exchange, showing greater resilience than trade in goods.
- Exports of services have grown significantly more than goods exports historically, driven by digitalization and reduced geographical dependence.
- Modern services, particularly financial and technological activities, are boosting this structural change and act as a buffer against shocks affecting goods trade.
- Emerging economies have a significant opportunity in services trade, but face structural limitations in human capital, digital infrastructure, and regulatory frameworks.
- The global outlook is characterized by moderate deceleration amidst high uncertainty, with geopolitical shocks, restrictive financial conditions, and inflationary pressures redefining the world economy's trajectory.