Insurance Insights Q1 2026: Strong economic growth despite geopolitical noise
Uncertain macro backdrop
The start of 2026 has brought a fresh wave of uncertainties for markets. Tariff policies are in flux after the Supreme Court ruled that US President Trump’s use of the International Emergency Economic Powers Act (IEEPA) was unconstitutional. Investors are also weighing the disruptive potential of AI adoption. Geopolitical complexity has risen sharply with the onset of US‑Israeli strikes on Iran unsettling energy markets. Despite these cross‑currents, markets have remained relatively resilient and held up better than initial expectations.
Oil price volatility has been the most visible channel of stress. Iran itself is not a meaningful global producer of oil accounting for roughly 5% of output, most of which is consumed domestically.1 The risk lies in the Strait of Hormuz which sits within Iranian territorial waters and carries around 20% of global supply flows.2 Disruption risks and uncertainty there have lifted oil prices and injected volatility into energy markets. Asian economies are more reliant on imported seaborne oil and have naturally been more exposed to these swings. Still, forward curves are pricing for oil prices to come down significantly and suggest markets expect the conflict to be short‑lived, limiting the potential for a prolonged inflationary or growth shock.
Investment implications
Against this backdrop, it makes sense that investors have become more cautious but are not in panic mode yet, given the range of potential outcomes. On the tariff front, the US executive branch is looking to replicate IEEPA‑imposed tariffs under other statutes, indicating that tariffs are likely to remain a feature of the policy landscape. The good news is that most economies have proved resilient to tariff pressures, with supply chains demonstrating flexibility after Covid disruptions. China’s export dynamics reflect this resilience: while shipments to the US have declined, exports to other markets have expanded significantly, offsetting the gap.3
Our core views have not shifted despite these shocks. Fundamentals still suggest the global economy may accelerate in 2026, which could be positive for cyclical and riskier assets. The US economy was handicapped in 2025 by tariff uncertainty, government shutdowns, and civil unrest, but we doubt the domestic policy backdrop will be as damaging this year. Most central banks have been easing for the past two years, money supply growth has picked up, and real wages continue to rise4. AI‑related investment spending could add incremental support. Leading indicators and purchasing manager indices have already strengthened, suggesting growth momentum is building.5
Historical patterns suggest cyclical assets, industrial commodities, equities, EM assets, REITs, and high yield are typically favored at this stage. Within fixed income, spreads remain tight, but all‑in yields may still be attractive, particularly for investors seeking income. Overall, while geopolitical and tariff noise may continue to unsettle sentiment, the fundamental backdrop points to stronger growth and supportive conditions for risk assets in 2026.
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
