S&P Global: Middle East Conflict Raises Global Recession Risks

Global financial stability faces increasing pressure from ongoing geopolitical tensions in the Middle East and persistently high interest rates, which together are heightening the risk of a broader global economic slowdown, according to a new report by S&P Global.

The agency warned that continued conflict in the Middle East could undermine corporate confidence and significantly increase the probability of a global recession, particularly if elevated borrowing costs persist into the second half of 2026.

At the same time, S&P Global noted that a more flexible regulatory environment in the United States, combined with companies accelerating deal-making ahead of potential policy shifts, is expected to support demand for advisory and underwriting services throughout 2026.

This environment could lead to higher deal volumes and increased fee income for major investment banks.

The report highlighted that growing pressure in private credit markets may push portions of leveraged finance activity back toward traditional banking channels.

Such a shift would likely provide additional support to underwriting revenues, even as geopolitical risks continue to weigh on broader market sentiment.

However, S&P cautioned that sustained high interest rates are increasing borrowing costs globally, limiting issuance activity and weighing on corporate financing decisions, particularly in the second half of the year.

Some companies, the report noted, accelerated debt issuance during the first quarter in anticipation of worsening market conditions, a move that could contribute to slower activity later in the year.

There are also risks of disruptions in syndicated lending transactions and potential losses on held positions if market volatility intensifies.

Despite macroeconomic challenges, trading activities are expected to remain strong, supported by heightened market volatility and wider credit spreads.

S&P Global said financing activities linked to trading desks are also likely to remain robust, further boosting revenues for major financial institutions.

Proposed capital rules may provide banks with greater flexibility to hold larger trading positions, though increased volatility simultaneously raises risks, including potential losses and heightened counterparty exposure, especially if investors adopt a more cautious stance.

In terms of competitive positioning, the report said market share dynamics remained largely stable during 2025.

Major US investment banks, including JPMorgan Chase, Goldman Sachs, and Morgan Stanley, continued to dominate global rankings.