The Age of Agility: Midyear Signals for 2026

WEBVTT - The Decisive-s6-ep12 Midyear check in on Age of Agility transcript Hello, and welcome to the Decisive Podcast. I'm your host, Kristen Hallam. I revisited our key strategic themes for 2026 in a client webinar on June 17 with S&P Global Market Intelligence experts in economics, country risk and trade and supply chain. These strategic themes were detailed in our age of Agility report released in late 2025.

In case you missed it, there's a link in the description of this week's episode, which is derived from the first half of this client webinar. Next week's episode will feature the second half of the webinar, which delves deeper into how AI is showing up across our strategic themes. It also looks ahead to the rest of 2026 as well as 2027. That's right.

We're not quite halfway through 2026, and we're already thinking about 2027. Admit it, you are too. Without further ado, here's the age of Agility, midyear singles for 2026, Part 1. At the end of 2025, we framed 2026 around 3 strategic themes: shaky economic foundations, shifting asymmetric power and adapting to trade realities.

Now at midyear, we're revisiting those themes in a more shock-prone environment. The question is not simply whether our strategic themes still hold. It's what has shifted, which signals matter most now and what that means for you as decision-makers heading into the second half of 2026 and beyond. These themes don't sit separately.

Economics, geopolitics, energy, AI investment, trade policy and logistics are all interacting in real time. We will explore the global economy's exposure to shocks and where resilience may still hold, how geopolitical competition, resource nationalism and emerging technologies are reshaping power dynamics and how logistics and supply chains are being rewired as companies adapt to sustained disruption. Let me introduce our S&P Global Market Intelligence experts now. Ken Walchrt, Vice President, Global Economics; Lawrence Allen, Head of Insights and Analysis, Europe and North America; and Eric Johnson, Senior Editor, Technology at the Journal of Commerce.

We will talk about all of these themes, starting with Shaky Economic Foundations. Ken, in our age of Agility report, which was published in the fourth quarter of 2025, we described 2026 economic growth as a delicate balance between tailwinds such as looser fiscal policy and headwinds, including debt burdens and trade uncertainty. How has the war in the Middle East and the resulting oil price shock influenced that view? Kristen, hello, everybody.

So it's clearly made a material change to the economic outlook. But before I go into that, it might be helpful just to take a step back and think about why we adopted the theme of shaky economic foundations. There are a few reasons for that. One was because the shift in U.

S. trade policy and the related increases in tariffs that we saw in 2025 was a very good illustration of how geopolitical developments could be a source of uncertainty potentially impacting on economic conditions. We also wanted to bring attention to some underlying vulnerabilities that could also pose a threat to economic expansions. For example, the poor state of public finances in many major economies that hinders government's ability to mitigate the effects of adverse shocks, including the one we've just been experiencing.

And also the public finances are a source of risk in themselves. At the very least, investors might require compensation for holding long-term debt. That pushes up yields. That implies borrowing costs for households and businesses.

In a worst case, there could be a loss of confidence in debt sustainability, interest rates spike, governments have to raise taxes to bring government deficits down, you fall into recession. - and so on and so forth. Now for the specifics of the conflict in the Middle East, obviously, it's another example of how geopolitical developments can materially change the economic outlook. In economist parlance, we've been experiencing a negative supply shock.

In this instance, that's been centered on, though it hasn't been confined to oil prices. And in simple terms, that means higher consumer price inflation rates. That means tighter monetary policy conditions. We've been seeing central banks raising interest rates.

And ultimately, for various reasons, it means weaker growth. Now those impacts are not uniform across countries. They differ because there are different sensitivities to the shock. There's different amounts of policy space to respond and so on.

But the bottom line is that geopolitical developments can make a very big difference to how we assess the economic outlook. Thanks, Ken. So zooming in for a moment, which regional growth stories look most exposed to downside surprises? And which, if any, are most exposed to upside surprises?

Well, there are a few different ways to think about this from an economic perspective. One route given the nature of the shock in the Middle East, if we focus there first, is to look at which countries are most or least reliant on imports of oil and gas from the Gulf. And many of the largest economies in Asia Pacific stand out in that respect. So when the conflict first began, that was a key area of focus for our economic forecast.

But that's just one dimension. We also need to think about some other factors. For example, a country's energy mix. It may get most of its gas from the Gulf countries, but that might account for a relatively small share of its overall energy consumption.

We need to think about the availability of strategic reserves. That's been a big issue for China. It was building up its oil reserves long before the conflict began. That's provided a cushion against higher prices and any potential supply shortages.

And as I mentioned, we also need to think about the policy responses. Some of those economies, which are highly sensitive to energy supplies from the Gulf also have quite a lot of fiscal space to shield their economies from the effect of higher prices or they can source their energy from elsewhere. We've seen, for example, U.S.

crude oil exports surge recently. And that leads to another point of differentiation, whether a country is a net oil exporter or a net oil importer. - an oil-producing country that's not in close proximity to the conflict and not suffering from the supply disruptions can benefit from higher demand for its energy exports at much higher prices. That was one of the reasons why we were relatively constructive on the U.

S. economic outlook when the conflict first emerged, plus a few other factors, including lower U.S. household taxes and AI-related spending.

Now that being said, we also have to differentiate between the aggregate impact on an economy and the sector-specific impact. So the U.S. can be a net beneficiary of an oil shock, but retail spending, for example, would still feel the negative effects of higher inflation on household.

- real incomes. We also need to think about how economies were faring before the conflict because now some of the concerns related to what's been happening in the Middle East are diminishing with oil prices coming down, an agreement between the U.S. and Iran having been reached.

So thinking about differences there in Western Europe, for example, many of the largest economies were really struggling to generate growth before the conflict began due to a range of factors, many of which were quite structural, including poor competitiveness. And so at the onset of the conflict, we again were highlighting the potential vulnerability of some of those larger euro area member states and also the U.K. economy to being potentially tipped into recession.

And what we've seen in the period since from our PMI data, which is a very timely indicator of momentum, including for growth, is that those economies do look like they're heading to periods of real GDP contraction, albeit so far relatively modest. So there's a whole range of different things that we need to look at. But on the basis of the supply shock in oil, there are certain countries which are more vulnerable as those potential risks diminish, some of those countries may start to come back a little, but we're currently in a kind of pivot point, I think, for how this conflict and its various effects evolves, and we'll have to keep a close eye on, obviously, the nature of the agreement, how quickly oil flows can resume in the straight of a month and some broader issues, including inflationary pressures, monetary policy responses and so on.

Thanks, Ken. Lots of factors and moving parts to watch there for sure. So Ken, what seem to be the drivers of growth heading into the second half of 2026 - or maybe it's better to describe them as pillars of resilience versus drivers of growth? Well, again, I think there are different ways to think about this from an economic perspective.

One is to look at the different influences on different types of expenditure. So again, the key effect typically of an oil supply shock is a squeeze on households real incomes due to rising inflation and other things equal, that would typically lead to lower consumer spending growth. If we think about the pillars of resistance in relation to that particular issue, we can have a squeeze on real incomes partly offset by fiscal support, although the ability to do that in many economies is quite limited, particularly in some of the larger ones in Europe.

We can also think about lower household savings rates possibly cushioning the effects on spending and Europe, in theory, has an advantage in that area because household saving rates have been relatively high compared to the U.S., for example. But with uncertainty still very elevated, households, you would think would maintain precautionary saving or maybe even increase their precautionary savings.

So in practice, that's probably not going to be much of a cushion. Of course, in recent days, we've seen the agreement put in place to extend the cease fire, try to reopen straightfmost. So some of those particular conflict-related headwinds have looked a bit less worrisome. But this being said, it takes time for oil flows to return to pre-conflict levels.

There's still lots of issues outstanding with the U.S., Iran agreement that could generate problems down the line. So it doesn't still feel like we're back to normality.

There's a long way to go before we could say that. Now regarding the drivers of growth rather than the kind of pillars of resistance, one area we have to mention is AI-related spending. That's been a really key engine of growth globally, and we see that in lots of different data sets, construction of data centers, demand for the kit that's going into them, investment in software. We probably all feel that on a day-to-day basis, the AI-related tools that we're using have been transformed over a relatively short period.

And then you have exports of key components, and that's been a big positive for many of the economies in Asia Pacific, which have been in the potentially most vulnerable camp from the energy supplies. from the Gulf. And we've seen very strong tech-related exports at the beginning of the year in that region. Now the AI story is obviously huge for the U.

S., and we can illustrate that in various ways. If we go back to the beginning of 2022, for example, when economies were coming out of that period of COVID-related disruption, AI-related investment in real terms in the U.S.

has risen by almost 50% since then. And that's over 5x the growth rate in the rest of U.S. GDP over the same period.

So it's been hugely important. Now the worry and economists always find something to worry about, as you probably know, is that growth is becoming overly dependent on AI-related spending. And ideally, we would like growth to be more broad-based. The narrower the base for growth, the greater the potential vulnerability to shocks.

All right. Yes, something to worry about always, isn't it, Ken? Well, trade is a big part of the macro story. So let's bring you into the conversation, Eric.

Heading into 2026, we highlighted the trend toward global regionalization with North America becoming less integrated into global supply networks and emphasis on intra-Asia connections growing. Is that still the direction of travel on trade? Yes. Thanks, Kristen.

Really delighted to be here. I would say even more so maybe than we had foreseen at the start of '26. We have physical constraints to trade between hemispheres, some of which didn't exist at the beginning of '26. And we obviously have trade policy constraints that are making intra-hemisphere trade look a bit more attractive than it might have looked in years past.

Intra-Asia trade, which you referenced is indeed robust, for example. In fact, global containerized trade, despite all the headwinds that we've talked about and we're going to talk about from an economic perspective, the global containerized trade has risen this year. But for the most part, that growth has come despite a drop in containerized trade to and from North America. So that tells us that globalization, that effect is real and it's happening.

I would say even if trade remains strong on what we consider traditional trade routes, so that would be primarily Asia, Europe and Asia to North America, we are preparing for an environment where regional trade strengthens over time, especially looking at shorter-haul trade routes where, for instance, assets, ships, containers, other assets related to the movement of goods can be cycled more quickly so you can get more out of those assets rather than on the longer-haul trades.

north-south trades in both hemispheres that have long had potential, greater potential maybe than has been realized. They haven't reached that theoretical potential yet because they tended to be less lucrative or because there's landside logistics constraints from an infrastructure perspective. So the math on all of that is changing in real time right now. So the way I think about this is these new routes or the diversification of the routes that are strong globally that won't necessarily be replacing, for instance, Asia, Europe, Asia, North America trade routes, but they will augment those lanes.

So we're just looking at a more picture where it's less dominated by those traditional kind of heavy haul routes that have defined the consumer backbone of our importing environment. All right. Thanks, Eric. I appreciate that.

Insight. So what evidence are you seeing that trade is being structurally rewired rather than temporarily rerouted? Well, I think of this in terms of companies needing consumers for their goods, right? Producers need markets for their goods.

And in a way, we shouldn't be overcomplicating this too much. If you have a factory and there's a government policy or a blockage of a key maritime passage or you have dislocated ships that normally serve the route that takes your goods from point A to point B to serve your traditional customers and you're no longer able to key on those transactions. If it's making it more difficult to serve your traditional customers, you have no choice but to look for alternatives. And that's happening, as we referenced earlier.

Trade tends to find the path of least resistance. And the path of least resistance right now, given trade policy impacts, given what we've seen in terms of constraints on key choke points, maritime choke points. Right now, the path of least resistance is intra-hemisphereic trade. And even in the Eastern Hemisphere, we're even seeing like dislocations on trade within the hemisphere.

So I think the interesting thing to think about relative to this point is it can bounce back. If policies ease or change, if canals or passages open back up again, trade will once again look for the most frictionless path, but that doesn't really feel like the world we're living in right at this moment. All right. So Eric, let's bring climate into the logistics picture.

El Nino has already raised concerns around water levels and transit capacity through the Panama Canal, speaking of choke points. What should shippers be watching? And could this change routing decisions in a more lasting way? Yes.

So just we have some immediate-term impacts on passage capacity through the Panama Canal as a result of El Nino causing drought conditions again. We saw this a couple of years ago where Panama Canal transits were severely restricted due to drought conditions. The Canal Authority has tempted to make some changes to its operating sort of capacities to knowing that drought could be a factor in the foreseeable future going forward. So July 1, we're already seeing transits being restricted.

Right now, container ships tend to be the ones least affected, and that's the area I cover most specifically. But if drought conditions worsen, we will see lower capacity through the canal. And then - so that sort of compounds what we are seeing in terms of choke points in the Eastern Hemisphere, right? So if this escalates due to drought, the option then becomes - and your route typically takes you through the Panama Canal, you either go around South America, similar to how trade has reoriented around Africa due to the inability to pass through the Suez Canal and the Red Sea or companies moving goods will look to concentrate around markets that simply don't require a transit - canal transit.

So that might be a different route to market or it could be focusing on markets that are easily reachable without the Cal transit. So I would say that's not conducive to what we would normally consider the free flow of containerized trade from every market to every market that we've enjoyed over - for the most part over the last 3 decades. And cargo owners are going to have to make - and obviously, the parties that serve them are going to have to make decisions about what markets are actually reachable at a cost competitive point and those that don't necessarily line up neatly also with markets that have trade policy constraints.

So you may be able to reach that market more effectively from a logistics or transportation perspective, but it may be prohibitive to serve that market because there are tariffs or policy constraints that make it not ideal. So this is really complicated, and I think you called it interdependency or interrelatedness on all of these factors. It's extremely complicated matrix of constraints that most companies are dealing with right now and the drought conditions potentially the Panama Canal is just another layer that kind of compounds that complexity.

Thanks, Eric. As with Ken, it seems there's always something to worry about in this regard. Now geopolitical forces are exerting an outsized influence on trade flows. So let's turn now to Lawrence to unpack that.

Laurence, we've highlighted a return of resource nationalism with resource endowed countries likely to seek more regulatory control, technology transfer and domestic value addition as AI, electrification and defense needs increase demand for critical mineral, are we moving toward a world where access to resources depends less on market price and more on political alignment? It's a fundamental question. I'm going to echo Eric's last comment a bit here. It's a very complex matrix, right?

I'm not sure there's one clear answer to this because arguably, we've been in that world for quite a long time now where political alignments have been having a very significant impact on markets and market prices. And the relationship between market prices and political alignment has always been complicated and often critical in both directions, right? I mean there's a long list of examples where, for example, governments have been forced to change tack or lost power because of market conditions.

And the same is true vice versa, the political conditions have shaped markets critically in many ways. And some of the political alignments that we've become familiar with over the last couple of years, Russia, China being pushed closer has had market impacts, but it's also a political alignment, again, Mainland China and Eastern and Southern Africa. Europe trade in this kind of incredibly fine line between the U.S.

and Mainland China, which is partly about market conditions. It's partly about political conditions and maybe partly U.S. tariff strategy and U.

S. Israel lines have both significantly impacted markets recently. And equally, the markets are impacting those political dynamics. Clearly, there are more or less dominant countries, governments and other entities in terms of resource endowment, in terms of financing of processing capacity, for example, whose alignments are shaped increasingly by the widening range of what we now consider critical resources by some of the complexities in supply chain, security and logistics, which Eric has just spoken about.

And both Eric and Ken have pointed towards some of the kind of relationship between general economic conditions, the geopolitics and some of these other issues I've just flagged. There are, of course, over the last couple of years and moving forward over the next kind of year, 2 years, a number of dynamics that to us, we assess as continuing that trend will continue in the balance towards political alignments that if we like at its inflection point when Russia invaded Ukraine in 2022, we expect that trend to continue in the next couple of years.

But more widely, globally, we think this trend will continue. And part of the reason for that is because of this kind of global of national security adoption, if you like, into an increasingly wide and complicated range of areas of the economy. And given what we see in terms of major level conflicts and trade conflicts and other elements, what we're now calling geopolitics, we see no particular reason to think that trend is going to diminish over the next year or 2. So again, not a particularly happy picture.

But as with all other assessments, there are potential areas of opportunity in that. Right. Thank you, Laurence. So strategic competition, let's talk about that between the U.

S., EU and Mainland China has been driving increasing tensions around access to critical minerals and emerging technologies. How do we see that strategic competition evolving following the war in Iran? Well, much clearly it depends on how effective a potential resolution to the conflict in Iran, how that shapes up.

At the moment, we're assessing that if the MOU is actually implemented, the MOU that's been spoken about this morning and supposed to be going into implementation on Friday, if that is implemented over the next couple of months, we're going to see, for sure, a reduction in shipping risks through the straight forward moves, right? We'll move to a severe level down from the extreme levels that we've been assessing since the start of the war. And that will particularly be good news, obviously, for tankers and merchant vessels.

Around the kind of more structural question and more central question that sits behind a lot of this, which is what is going to happen on Iran's nuclear program, there are still a number of big questions that need to be answered as to how effectively the parties can negotiate to get to a place where this is not just going to escalate again quickly. So obviously, we're keeping a very close eye on that because we'd really expect to need some sort of more stable agreement around Iran's nuclear developments to give us some level of confidence that some of the insecurity we see in the region is, if not permanently, at least in the slight or longer term, - in terms of the kind of the real kind of macro level, if we think about the way that the U.

S., Mainland China and EU interrelate, there are clearly difficulties between each of these 3 big players. The difficulties between Mainland China and the U.S.

are very well known. For the European, EU and particularly concerns over Mainland Chinese manufacturing capacity, market access, for example, for autos, for pharma is a major fault line. But on the other side, we see that the completion of the U.S.

/EU trade deal, which is now signed off, brings more predictability to that trading relationship. So these 3 big blocks are intention with each other. Inside that, there are a whole stream of different bilateral issues that complicate matters for all 3. That picture looks set to remain fairly stable in that regard over the next 12 months, but with some improvement on the U.

S., EU side because of the trade deal. Stepping further away, I just want to raise the point about how physical infrastructure and the support for that can change things over the next couple of years. And just 2 kind of examples in particular, one, the development of the Lobito corridor, so the real line out from the DRC's mineral reserves in Southern Africa coming out at the Atlantic, which will be a major boost both to DRC economy to the aspirations of U.

S., EU and other partners to get better predictability in supplies of cobalt, copper, among other things. And then on the other side of the world, on the West Coast of Latin America, the Shanghai Megaport in Peru, which has cut shipping times for containers down from 40 days to 24, 25 days. That is a Chinese financed project.

And I think if you take these 2 things together, you can see the physical infrastructure aspect of this competition is shifting the picture over the long term as well. All right. Thank you for that, Laurence. We also talked about the evolving nature of conflict in our age of Agility report, anticipating more outbreaks with limited scope and duration.

Lawrence, what role is technology playing in these types of conflicts? And what indicators or hotspots are we watching here? I think the way that we are thinking about this is what are the lessons learned from Russia, Ukraine, from the Red Sea and from the Iran conflict, right? We can put these into 3 broad categories.

One, that technology is lowering the entry barriers for a wider range of actors to access pretty advanced military capabilities. Two, the war in Ukraine shows just how quickly new tech like drones can evolve and reshape warfare tactics and quickly become a factor elsewhere because we've seen very strong evidence of that in the Iran conflict over the last few months on both sides. And that these technologies are now spreading - have already started to spread and are now spreading more beyond states to non-state actors, for example, criminal networks or malicious.

And that is further shifting these kind of power asymmetries that we refer to. Some examples of that, we see criminal and other non-state arm groups, for example, in Colombia, using drones, not just for surveillance in the way that they used to do, but now actually for conflict purposes on the battlefield in Mexico, we know that the new generation HaliscoCartel have got access to and have been using drones and in the SA Alkaida link, non-state arm groups have been using this type of technology as well.

In particular, that's of interest to us over the kind of slightly longer run because this is in a region which, of course, is endowed with a lot of natural resources. We've got lithium in Mali. We have uranium in Niger amongst other things. So all of these factors create a far more complex and persistent and in fact, volatile threat environment.

In terms of indicators, we're looking very consistently at the first use of any new UAV tech in any of these hotspots to indicate improved capabilities for these groups, but also potentially expansion of their areas of influence. So for example, in the SAHL, if we see an uptick or an upgrading capability, we would expect that to be followed by potential expansion of their areas of operation.