Impact of Middle East Tensions on the Global Economy and Commodity Markets | Chapter 2Global Economy in H1 2026: Middle East and AI Shape US Growth

This chapter organizes the global economy in the first half of 2026 by major country and region, taking account of developments in the Middle East and their effects. In the United States, private fixed investment expanded against the backdrop of AI-related demand and maintained the economy's expansionary trend, even as consumption growth slowed. In China, consumption and fixed asset investment were weak; although production activity and goods exports were relatively strong, the economy slowed moderately amid stagnant domestic demand.

US real GDP grew at an annualized rate of 2.1% quarter on quarter in January–March 2026, while the GDP gap indicated excess demand of approximately 1.0%. AI-related investment, rather than personal consumption, supported the economy, and the composition of growth was tilted toward investment as rising prices eroded household purchasing power.

In Asia, South Korea recovered gradually against the backdrop of global AI demand, while Taiwan expanded mainly on external demand. Indonesia recovered gradually with support from domestic demand, and India expanded, whereas Thailand recovered but did not see stronger consumption growth. In Europe, Southern European countries such as Spain and Italy led the euro area's recovery, and the United Kingdom also recovered.

The impact on households differed greatly by income group. Rising stock prices supported consumption among high-income groups with substantial stock holdings, but the consumption-boosting effect may weaken as assets become more concentrated. Low- and middle-income groups devote larger shares of their budgets to essential goods such as food, housing, utilities, gasoline, and medical care, so higher prices and worsening income conditions squeezed their real purchasing power.

In the housing market, purchasing a standard home with a median price of 414,000 dollars at a 6% 30-year fixed mortgage rate was considered difficult for 65% of households, including middle-income households. Higher prices and interest rates prevented younger people from making first-time purchases, making housing affordability a social issue.

The concentration of AI investment boosts growth while creating mixed effects on employment and local infrastructure. The number of publicly announced job cuts attributed to AI reached 88,000 over the five months from January through May 2026, and areas with concentrated data centers may face burdens related to electricity demand, power bills, and water use. In January–March 2026, at least 75 construction projects worth approximately 130 billion dollars were suspended or delayed because of opposition from local residents.

For companies, tariff changes, declining immigrant labor, energy prices, and uncertainty became factors in hiring and investment decisions. In North America, the parties failed to reach agreement on a joint USMCA review, making the continuity of supply chains built on the agreement uncertain. From a policy-management perspective, the challenge is how to promote domestic production, energy supply, and housing supply while containing price increases caused by tariffs.

US personal consumption has slowed since the second half of 2025, particularly for goods. Services account for 69% of total personal consumption, non-durable goods for 20%, and durable goods for 11%. In spring 2026, price increases exceeded wage growth, and real wage growth turned negative for the first time in three years. Employment rose for three consecutive months from March 2026, but job openings and hiring remained sluggish, and the unemployment rate stayed at 4.3–4.4%.

For individual income tax refunds, the filing deadline is generally April 15, and refunds take approximately three weeks after electronic filing. As of May 2026, the average refund was 337 dollars higher than a year earlier, and approximately 90% of refunds had been processed. However, among those expecting refunds, 52% planned to use them for savings, indicating a preference for supplementing household finances over consumption.

AI-related investment is concentrated in data centers, information equipment, software, cooling systems, power infrastructure, and high-speed networks. The five hyperscalers are Alphabet, Amazon, Meta, Microsoft, and Oracle, while data centers are particularly concentrated in Virginia and Texas. Although corporate earnings remain solid, dependence on AI demand has become a source of economic volatility.

In trade policy, the US Supreme Court ruled on February 20, 2026, that tariff measures based on the IEEPA were unlawful, and collection was halted on February 24. As an alternative measure, the government imposed an additional 10% tariff under Section 122 of the Trade Act for 150 days. Under Section 301 investigations, it proposed imposing 10% or 12.5% depending on the implementation status of the import ban on products made with forced labor. The total value of IEEPA tariffs was 166 billion dollars, and refunds are proceeding in three phases covering unsettled amounts and other eligible sums.

The USMCA entered into force on July 1, 2020, and reached its joint review in July 2026. Under the agreement's provisions, it automatically expires in 2036, but it can be extended for 16 years from the time of agreement if all three countries agree to continue it. In negotiations with Mexico, a proposal was presented to raise the regional value content standard for completed vehicles from 75% to 82%, with 50% of that content originating in the United States.

For product-specific tariffs, a policy was announced to impose an additional 100% tariff on pharmaceuticals from July 31, 2026. However, companies with approved plans to build factories in the United States receive a reduced rate of 20% until April 1, 2030, while companies that conclude an MFN agreement on drug prices receive a 0% rate until January 20, 2029. Generic drugs and other products were excluded.