Persistent inflationary pressures, caused in no small part by elevated energy prices, has led Indosuez Wealth Management to revise its growth forecasts downwards for 2026.
Indosuez Wealth Management has revised projections for economic growth amid ongoing inflationary pressures, partly driven by elevated oil prices due to the Middle East conflict.
In the US, for example, it originally forecasted 2.7% annual growth in 2026 but after the Iran war broke out, this was revised to 2.1% with its inflation prediction moved up from 2.5% to 3.4%. In Europe, the relative change was even greater, with a downward growth revision from 1.3% to 0.4% while inflation expectations have surged 170 basis points to 3.5%.
“So you can see since the start of the year, we have significantly downgraded growth forecasts to take into account the new environment, the significant increase of inflation,” said Alexandre Drabowicz, global chief investment officer at Indosuez Wealth Management, at a recent media briefing.
Fed rate outlook
As a result, the bank is also changing its view on interest rates with expectations now for a possible Fed cut in 2027, as inflation has not yet fallen to the 2% target.
“I do admit that Mr. Warsh, the new Fed chairman, is much more hawkish than we expected,” Drabowicz noted, adding that the chances of a rate hike this year is extremely low but not zero.
“But I think this is good news. I think everybody had in mind that Kevin Warsh would arrive at the Fed with the mandate by [Donald] Trump to cut rates. That was the initial thinking. The reality is when Mr. Warsh had this inaugural speech, he came out very strong. He wanted, I think, to establish himself as a very credible Fed chairman so that people believe that if he has to increase rates, he can do it.”
US-Iran deal likened to “divorce”
One of the major inflationary drivers has been elevated energy prices caused by the Iran war and blockage in the Strait of Hormuz. Despite having signed an interim deal, there were already early hiccups with several strikes in late June.
At Indosuez, it has set a target of USD80 per barrel of Brent crude oil in its central scenario.
“It’s like when two people have a divorce. They sign the papers, but they continue to fight for a long, long time,” Drabowicz said.
For investors, the bank is constructive on equities, especially in the US and emerging markets, but is now cautious on Europe. Within fixed income, it prefers corporate debt for carry and suggests diversification into emerging market debt. It also maintains a cautious view on the dollar and stays positive on gold despite recent volatility. It is positive on AI, defense, infrastructure, and natural resources as structural forces.
