Coface’s latest risk review, Rates Against the Machine, has confirmed what the world dreaded just a few months ago has come to pass – rather than improve, the geopolitical situation has deteriorated once again.
This, Coface says, puts upward pressure on commodity prices and interest rates and, therefore, on economic activity. The review examines how escalating geopolitical tensions, higher commodity prices, and tighter financial conditions are affecting economies and businesses worldwide.
Coface carried out three country downgrades and four upgrades and made 20 changes to sector assessments (12 downgrades and 8 upgrades).
Key figures from the review include:
- 0,5 percentage points: estimated cost of the Middle East conflict on global growth in 2026 and 2027.
- $100/barrel: oil price threshold exceeded in September 2026.
- 2,6%: Coface growth forecast for 2027 (2,5% in 2026).
- 1,3%: South Africa growth forecast for 2027 (1,0% in 2026).
The global economy caught up in inflationary pressures
The geopolitical situation deteriorated significantly over the South African winter. Renewed hostilities between Iran and the US, and the doubling-down of the conflict between Ukraine and Russia have put supply chains under severe strain and triggered a sharp increase in commodity prices.
Although oil exports transiting the Gulf through the Strait of Hormuz have increased significantly and trade flows have been re-routed, hydrocarbon prices have climbed by more than 50% for oil and almost 100% for natural gas.
Metal prices remain high, while agricultural commodity prices have risen considerably in the wake of strikes on Black Sea port terminals and heatwaves across Europe (+40% year-on-year for wheat).
These developments revived concerns of a fresh inflationary surge, prompting central banks to raise policy rates.
The Federal Reserve responded by a 25 basis points (bps) hike and, in so doing, contributed to tighter global financial conditions. Since the low reached in mid-January, the US dollar has gained more than 6% in effective terms, while long-term interest rates have climbed by more than 100 bps across most major currency areas since late February.
For now, the global economy has been resilient, supported notably by AI-related investments and the associated wealth effects.
However, risks continue to accumulate. Against this backdrop, we maintain our forecast of softer economic activity this year (+2,5%, following +2,8% in 2025), before stabilising next year (+2,6%).
South Africa faces high country risk
South Africa’s economic growth is expected to remain modest at 1,0% in 2026, improving only slightly to 1,3% in 2027. Businesses continue to navigate a challenging operating environment shaped by low demand, logistical constraints, persistent inflationary pressures, and global geopolitical tensions. South Africa’s country risk assessment remains at C (high risk level), according to the Coface Risk Review.
Inflation remains a key concern
The report highlights that across Africa, inflation remains a key concern, driven by rising agricultural and energy prices – particularly as the effects of El Niño could affect food production and supply chains. While most African economies experienced only a temporary spike in inflation during the April to June period, upward pressure on prices remains a significant risk heading into 2027.
Transport, construction face very high levels of risk
For South African businesses, sector risks remain uneven. Information and Communication Technology (ICT) and pharmaceuticals are assessed as lower-risk sectors, while transport and construction continue to face very high levels of risk.
“While South Africa is expected to maintain positive growth, the outlook remains constrained by structural challenges and a difficult global environment,” says Aroni Chaudhuri, chief Africa economist. “Despite the stress on international bond markets, South Africa’s benchmark yield has been relatively steady – partly due to the improvement in public finances. However, global risk-off episodes may happen in the coming quarters. Depreciation pressures on the rand would intensify, increasing inflationary pressures and prompting further monetary tightening.”
Country and sector risks: 3 downgrades in the Middle East and pressure on the agri‑food sector
In the Middle East, economic activity is expected to contract across Gulf Cooperation Council countries in 2026.
Saudi Arabia (A3 → A4) is exposed to attacks on its energy infrastructure and most of its export routes, while the United Arab Emirates (A2 → A3) and Qatar (A3 → A4) are vulnerable owing to their dependence on the Strait of Hormuz.
The agri-food sector has been downgraded in six countries.
In Europe (France, Austria and Poland), the move relates primarily to the extreme weather conditions experienced during the summer of 2026. In the United Arab Emirates and Saudi Arabia, vulnerability stems more from their strong reliance on food imports than from any domestic production issues. In Argentina, the sector continues to face a challenging financial environment marked by several agricultural business failures, elevated costs, and tighter margins.
A multi-speed global economy
- In the US, the economy remains resilient thanks to household consumption, AI‑related investment, and a labour market close to full employment (4% unemployment rate).
- Europe is performing slightly better than expected, supported by the resilience of the German and Spanish economies despite concerns over the sustainability of French public finances.
- In Asia, momentum is mixed. Vietnam (+8,4%) and India (+7,5%) continue to benefit from infrastructure spending and AI-related technologies, while China’s domestic demand is weakening and several economies in the region (Thailand and the Philippines) are being weighed down by rising energy costs.
“The prolonged conflict in the Middle East is reviving the risk of another global inflation shock,” says Jean-Christophe Caffet, chief economist at Coface. “Rising energy, commodity and transport costs are forcing central banks to maintain restrictive monetary policies, which makes the environment increasingly challenging for the most vulnerable governments and businesses.”