Whenever a new conflict erupts in the Middle East, the world’s attention immediately turns to oil. How high will prices go? Will inflation rise again? Will central banks delay interest rate cuts? Those are usually the first questions investors ask. Yet the latest Goldman Sachs review suggests something different happened this time. The first blow was not felt in the oil market. It was felt in the expectations of businesses, investors, and economists. That may be the most important conclusion from the bank’s latest update of global economic indicators.
Since the start of the conflict around Iran, economic data from many of the world’s largest economies has increasingly come in below expectations. The trend has been particularly visible in Europe. Goldman Sachs’ MAP Economic Surprise Index, which measures how actual data compares with market forecasts, has fallen sharply. In simple terms, investors expected stronger numbers than the economy was able to deliver. That does not mean a crisis is underway. But it often serves as an early warning sign that confidence is beginning to weaken before the broader economy shows clear signs of trouble.
At first glance, the global economy still looks reasonably healthy. Goldman Sachs’ Current Activity Indicator, or CAI, estimates global growth at an annualized pace of 2.8% in April. Developed economies are growing at 2.2%, while emerging markets are expanding at 3.8%. These are not recession numbers. In fact, several major economies continue to perform quite well. The United States is growing at around 3%. Japan stands at 3.2%. India remains one of the brightest spots in the global economy with growth near 7.9%. Looking only at those figures, it would be easy to conclude that the world economy is handling another geopolitical shock without much difficulty.
The problem is that economies rarely change all at once. Expectations usually move first. Financial conditions follow. Investment activity slows next. Only then do production, hiring, and consumer spending begin to weaken. This is why Goldman Sachs pays so much attention to its surprise indices. They often reveal shifts in momentum long before traditional economic indicators do.
Europe offers perhaps the clearest example. The euro area remains one of the weakest major economic regions. Its current activity reading stands at just 0.8%. Germany has slipped into negative territory at minus 0.6%. France is holding around 0.9%. Spain is the main exception, posting a stronger reading of 2.4%. The broader picture is clear. Europe is still growing, but at a much slower pace than many other parts of the world. When uncertainty rises, weaker economies tend to feel the impact first. The closer an economy is to stagnation, the more sensitive it becomes to external shocks.
China also deserves attention. On the surface, the numbers remain solid. The country’s activity indicator stands at 4.3%. But beneath that headline figure, signs of slowing momentum are beginning to appear. Over the past week alone, the indicator dropped by 2.3 percentage points. According to Goldman Sachs, this was one of the largest deteriorations among major economies. China remains too important to the global economy for such changes to be ignored. Any slowdown in the world’s second-largest economy affects expectations for trade, manufacturing, and commodity demand across the globe.
Another important signal comes from financial conditions. Over the past week, Goldman Sachs’ global financial conditions index worsened by about 5.5 basis points. The main driver was higher long-term bond yields. On its own, that may not sound dramatic. But the trend behind it matters far more than the number itself. For years, investors have focused on central banks as the main force determining the cost of money. Today, bond markets are increasingly tightening financial conditions on their own. Yields are rising. Capital is becoming more expensive. Funding costs for businesses are moving higher.
This is where expectations begin to turn into real economic consequences. As investors demand higher compensation for risk, borrowing becomes more expensive. As uncertainty increases, companies become more cautious about investment. As confidence in future demand weakens, expansion plans are delayed. The economy starts to face pressure even before changes become visible in production, trade, or consumer spending.
Interestingly, Goldman Sachs spends very little time discussing oil itself. Despite the obvious link between the conflict around Iran and the energy market, the report focuses primarily on economic activity, financial conditions, inflation, and labor markets. That approach reveals a much broader story. Geopolitical crises rarely affect economies only through energy prices. More often, they change how people think about the future. Expectations shape investment decisions, influence the cost of capital, and drive business activity.
That is why the key question today is not how high oil prices might rise. The more important question is how quickly business and investor confidence could weaken. Goldman Sachs’ latest review suggests that process may already be underway. The global economy is still expanding. The United States remains resilient. India continues to be one of the strongest drivers of global demand. Financial markets are not showing signs of severe stress. Yet economic data is increasingly falling short of expectations. And that is often the first sign that the world economy is becoming less confident about what comes next.
If the conflict around Iran has already changed expectations, then the longer-term economic consequences may begin there rather than in the oil market itself.
Sultan Valikhanov, expert of the EconomyKZ.org portal
