Global economy avoids recession six months into Iran war

Six months after the United States and Israel launched military operations against Iran on Feb. 28, the global economy has avoided the recession that many forecasters initially predicted. Stock markets have rallied, oil prices have retreated from their peaks, and growth — while slower — has held up better than the early worst-case scenarios suggested.

"So far, the global economy has pulled off the financial equivalent of a 'Mission Impossible' scene," said Michael Ashley Schulman, an investment strategist with Cerity Partners, in a Fortune assessment published Saturday.fortune

Resilience by the Numbers

U.S. real GDP expanded at an annualized rate of 1.5 percent in the second quarter, down from 2.1 percent in the first, according to the Bureau of Economic Analysis. Consumer spending surged at a 3.2 percent pace, and business investment tied to artificial intelligence infrastructure helped sustain domestic demand. The Dow Jones Industrial Average has gained nearly 19 percent since the war began, while the S&P 500 is up almost 22 percent and the Nasdaq Composite has surged 27 percent.wgauradio+3

Brent crude, which spiked to $118 a barrel in late April as the closure of the Strait of Hormuz threatened roughly a fifth of global oil supply, had fallen back to around $72 by late June. The International Energy Agency has called the Hormuz disruption the "largest supply disruption in the history of the global oil market," yet a combination of inventory drawdowns, alternative production and weaker demand prevented a sustained price spiral.businessamlive+1

Inflation, meanwhile, has eased modestly. The Bureau of Labor Statistics reported that U.S. consumer prices rose 3.4 percent year-over-year in July, down from 3.5 percent in June.cnbc+1

Risks Building Beneath the Surface

The reassuring headline figures mask growing vulnerabilities. The IMF's July outlook projected global growth of 3.0 percent in 2026, down from its pre-conflict forecast of 3.4 percent, with global headline inflation revised up to 4.7 percent. The fund explicitly identified a reassessment of AI profitability as a downside risk, noting that the same investment cycle supporting growth could become a source of financial stress if expected returns disappoint.reuters+3

Europe's external position has deteriorated sharply, with the eurozone recording a €7.8 billion goods-trade deficit in May as energy imports climbed 10 percent year-over-year. The Wall Street Journal News Corp ↗ 0.90% reported last week that the AI boom's outsized role in sustaining growth is itself becoming a concern among economists and policymakers.businessamlive+1

A Fragile Balance

The buffers that absorbed the initial shock — strategic reserves, alternative supply routes, resilient consumer spending — are finite. The IMF has warned that a prolonged Hormuz disruption could still inflict serious damage if inventories are depleted. Central banks face the awkward combination of softer growth and inflation well above target, leaving little room for rate cuts without risking entrenched price pressures.businessamlive

"The more revealing question is not whether the global economy is heading for recession," the BusinessAMLive analysis concluded. "It is whether the mechanisms that have protected the economy from recession are themselves becoming sources of vulnerability."businessamlive