In Focus: G7 Summit

Welcome to J.P. Morgan's global research podcast, In Focus, where we explore timely and thematic topics with insights from across global research. My name is Sam Mazzarello and I lead content strategy.

In today's episode, we bring together macroeconomic views to explore key takeaways from the recently concluded G7 summit. We have joining us Michael Ferroli, chief U.S. economist, Greg Fuseshi, our chief euro area economist, and Ayako Fujita, our chief economist for Japan. Thank you for joining us today.

Mike, let's begin with you. The G7 summit came at a pivotal moment with the U.S. reaching an interim agreement with Iran. Considering that the Iran deal came up at the summit extensively, along with energy security, when you think about the U.S. economy, how do these forces interact with your macro outlook?

All right, Sam, so the deal doesn't change that much for our macro outlook. The biggest impact of the Iran conflict has been through energy prices, and we've been using Natasha's forecast, which has a reopening similar to what we think we're going to get. I guess a little more granular, at least since late last week, gasoline futures six to 12 months out have gasoline prices down about 10 to 20 cents a gallon, which isn't nothing, but it's also probably not big enough to have a really big change to our forecast.

So I think that's the big picture in terms of how we're thinking about the deal. Do you think there's any lift to consumer sentiment from the Iran deal, or is that not a factor that's large enough to impact how people feel about affordability and the actual macro growth picture? Yeah, I think we could see a little bit of a pickup here in sentiment.

It's hard to go much lower, so obviously very low. Now, these sentiment measures haven't lined up too well with consumption outcomes, and we saw that recently with the May retail sales report, which looked solid yet again. So even though sentiment has been in the gutter, it hasn't affected spending.

So if sentiment comes back a little bit, I'm not sure that would change too much in terms of how we're thinking about real spending outcomes. That's very interesting then about the disconnect between sentiment and consumption. If we zoom out now and talk about trade, which was a theme woven throughout the summit, and talk about tariffs and the importance of U.S. within the global trade system, is there anything you would highlight to listeners around trade fragmentation or protectionism?

I guess one thing to keep in mind in case people have lost track of all the various reshuffling of trade agreements after the Supreme Court knocked down the reciprocal tariffs earlier this year, the administration put in place the so-called Section 122 tariffs, which expire next month. Presumably those will get replaced by other tariffs such that it will keep the average effective tariff rate around 12 percent or so. But again, with a lot of kind of shuffling of the deck in terms of the exact legislative authorities being used.

In terms of fragmentation, I guess one thing I would point out is globalization probably, in terms of imports and exports share, probably stopped 15 years ago or so. So if you look at the export share of GDP, that peaked in 2008. The import share peaked in 2011.

You know, this is long before we were talking about friend-sharing or supply chain resiliency and all these things. So this is actually been a feature of the economy now for quite some time. You know, I would expect given the higher level of tariffs that over time we should see that reduce somewhat even further the import share of GDP by perhaps another percentage point or so.

But right now we're not seeing much yet in terms of investment in domestic manufacturing facilities or things of that nature. That's really interesting. I always think it's fascinating when data leads first and the narrative and rhetoric follows later.

And it sounds like there was a bit of a gap from when the data may be peaked and the narrative coming top of mind. For sure. So last question for you, you've written extensively on AI's impact on the U.S. economy and it was featured prominently on the G7 agenda.

How do you see AI developments and the AI narrative shaping productivity and growth going forward? So I guess, you know, the immediate impact of AI on the, you know, the macro economy is what we're seeing in CapEx. We had some huge CapEx numbers in the first quarter.

We continue to see this not only in the U.S. and globally, but globally is tech production, tech investment. For the U.S., a lot of the CapEx is being imported, but nonetheless it is making, leaving a huge imprint on the data. I think where we have mixed evidence is on labor markets.

We do see some evidence of slowing employment in certain business and professional services, which may be related to AI. There are other hypotheses out there. So I don't know if listeners saw, you know, there was a big concern about recent college graduates' unemployment rates.

Everyone speculated it was AI. New York Fed came out with some very provocative research suggesting it was actually work-from-home industries that were responsible for the tougher times for recent college graduates. But certainly AI is definitely something that's being very closely watched for labor market impacts.

In terms of productivity, estimates are all over the map. My best guess and our team's best guess is that, you know, for the next two or three years, where we have some visibility, where we have some visibility on the data center rollout, overall investment in AI, we think it could add about a half percentage point to economy-wide average labor productivity over the next two to three years, just through more capital deepening and basically work with more productive tools. Is there a heuristic or rule of thumb when it comes to CapEx being deployed or new technology and then the lag in terms of when you then see it show up in productivity growth?

Yes, this is probably one of the biggest debates right now, I think, when it comes to AI and productivity. There is a very famous paper from a few decades ago saying that electricity, the time between when it was rolled out and the reconfiguration of factories led to a lag of multiple decades before you saw it in productivity. Now, there are some AI enthusiasts, including one we had a webinar a few years ago, who made a provocative case that, you know, you could see a much shorter lag between investments in AI and when you see it in data.

I think he was arguing, you know, as short as a year, which, again, is quite a bit shorter than the profession usually thinks about the lag between investment and productivity. Now, joining us is Greg Fuseshi, JPMorgan's Chief Euro Area Economist. We've seen a wave of headlines out of the Euro area with the Russia-Ukraine conflict continuing to dominate discussions at the G7.

Greg, with Russia-Ukraine remaining central, what stood out most to you from the latest developments? Is the conflict directly or indirectly affecting the European macro and market outlook? Yeah, so first of all, thank you for having me on.

I mean, in terms of the question around Russia-Ukraine, an agreement was reached at the G7, so there is a more unified position in terms of doubling down on supporting Ukraine and also doubling down in terms of putting some pressure on Russia itself. There was a period where some of the sanctions were temporarily lifted, but effectively you're reversing that now and trying to maintain pressure on Russia itself. I think if I think about this from a macro perspective, the first question is, is there actually going to be some progress that will be made on the ground in terms of Russia and Ukraine?

Are we moving towards a peace or some sort of ceasefire or some sort of progress along those lines? I would say that, first of all, Ukraine appears to be doing better in terms of the battlefield situation. The second is that the European-Ukrainian side is not taking that improvement on the battlefield as a way of sticking to the conflict and trying to push on, but they are actively trying to move the debate towards a peace-type arrangement.

But I think you could still be very sceptical about whether the Russian side is going to play ball in that process. So the view here, I think, is still quite sceptical about whether any concrete progress will be made in a more dramatic sense, doubling down on support for Ukraine and putting more pressure on Russia is one thing. But will that actually result in any quick and dramatic change in terms of the outlook there?

But let's just entertain the possibility that something big will happen. Then I would still be quite cautious about thinking that the macro outlook will change dramatically because Western Europe has taken significant steps to reduce its reliance on Russian gas. So one channel through which a peace might have a macro effect is if it leads to a material reduction in energy prices in Western Europe.

But pre-Iran conflict, those energy prices had already fallen very substantially and were quite close to pre-2022 levels. So it started to become less important from a macro perspective. But also, even if you go towards a ceasefire, eventually some sort of peace, there's a question about how quickly Western Europe would re-engage with Russian gas.

I mean, I don't think they want to rebuild reliance on it. And politically, there are big hurdles for re-engaging with that anyway. So it's not clear that the energy channel will be a big macro driver, even if you have progress in terms of the political side of this.

And then other channels like reconstructing Ukraine will obviously involve significant amounts of money. But from an economic activity perspective, that is mainly something that boosts Ukrainian GDP as opposed to Euro area GDP. The scales are obviously very different.

So once you look at it on a Euro area basis, it's small anyway in terms of how much you can spend on reconstruction in any given year. But then it won't really count to European GDP anyway. Confidence is one channel which I think could be more interesting, because we did have a very big knock to confidence in 2022.

I would say some of the indicators that kind of disconnected from some of the other macro indicators are still looking quite low. It's possible that confidence could get some sort of boost if there is a peace deal. But then there is so much else going on geopolitically.

To actually see that in the data, I think you would need a change in the Ukraine-Russia situation, but nothing else blowing up on you in other parts of the world. And the track record recently is quite poor on that. So Greg, that dovetails nicely actually with the comments Mike made.

He outlined how even with the Iran deal coming to fruition, it doesn't necessarily mean that the confidence boost to the US is going to be meaningful, because there had been a bit of a disconnect already with US consumer sentiment and confidence being at all-time lows almost and consumption still being up. But you do think with Europe there could be a little bit of a boost to business and consumer confidence holding all else equal? Yes, but with the big caveat that we don't actually see an imminent change in the situation in Ukraine and Russia just because of the Russian position on this.

I mean, their demands are wanting Ukraine to surrender, having pretty big demands territorially in terms of control, et cetera. And it's hard to see that gap being bridged very, very quickly. And no talks are actually taking place at the moment.

So it's a possible support. It's just the likelihood you attach to it then diminishes the effect on macro outcomes even further. Russia-Ukraine obviously came up at the summit, as did AI.

There was a strong focus on AI. Based on your research and your understanding, there is a broader agenda and there are a lot of challenges. Do you think AI is getting a lot of airtime?

And what's Europe's take on that? But I'd also like to hear from you what else you're looking at, what else there's been progress on in relation to Europe and geopolitical and economic affairs. Yeah, so I mean, my feeling, having looked since the start of the year more at some of the deliberations in the European Council, which is the main decision making body in the region, where the heads of state in the EU come together, is that they are really fighting a lot of battles at the same time.

And they've set themselves very ambitious timescales for tackling some of these. AI is one of them. I think the issue that's come onto the radar very recently is access to critical models, et cetera.

And that is definitely a very relevant question. But then you've got broader questions about European productivity. Is Europe missing the boat in certain technologies?

Is Europe able to overcome some of its internal divisions? Is it balancing the green transition with competitiveness correctly? There are all sorts of things in the hopper.

So I would make a couple of points here. One is on the macro side, my feeling looking at the macro data in the Euro area, but I think if you include the Scandis in the UK, you probably end up with a similar picture, is that growth is on the unexciting side. There is no very, very positive kind of growth narrative out there, apart from German fiscal policy that has got a lot of airtime and is making a big shift.

But despite that, the region has done OK. Growth has been in line with potential over the last couple of years, despite everything that's gone on in terms of geopolitics. Domestic demand was actually outperforming GDP growth.

So it's not like the Euro area grew in line with potential simply because foreign demand was propping it up. It was actually the other way around. So I would say the fundamentals are not exciting in terms of what they're generating in growth outcomes, but they're solid.

If you take the trade war and everything else to have performed in line with potential, I would have taken that a year ago. So that's fine. So that's the sort of the glass half full narrative on that.

I would say the glass half full also extends to where the policymakers sort of get it. I think you can quibble with many of the policy initiatives. You know, are certain ideas going far enough?

The 28th regime, simplifying regulations, cutting red tape. You know, how far are they going? How ambitious are they really?

But I do detect quite a lot of policy urgency. And I think the outcomes will probably fall short of where they could land. But important first steps, I think, over the next three to six months are going to be made in quite a few areas in terms of energy regulation, green transition, the 28th regime, making the single market work better, etc., etc.

So it's kind of quite encouraging. It's difficult to track specifically in terms of, OK, what is actually being ticked off. But the awareness that a step change is needed, I think that's quite well established.

Greg, fascinating. Thank you for the time and insights. And finally, joining us is Ayako Fujita, our chief economist for Japan.

There's been many headlines taking place in Japan, news coming from the Bank of Japan and expectations around energy prices, given the closure and now opening up the Strait of Hormuz. Ayako, with energy security and supply chain resiliency being key G7 areas of focus, how is Japan balancing near-term risks with longer-term incentives to diversify and strengthen supply chains? Excellent.

So thanks for this question. Yeah, Japan has long formed a series of shocks, the oil crisis of the 1970s and the 2011 Fukushima nuclear accident and Russia-Ukraine crisis and China dominance in the earth. And based on this experience, Japan has pushed policies that balance two objectives, that's managing near-term risks of supply disruption and price spikes, while also advancing long-term diversification and technology developments.

On the near-term side, Japan has focused on diversifying sources and maintaining strategic energy reserves to ensure rapid responsiveness. We saw this during the Russia-Ukraine crisis when actually diversified LNG procurement helped sustain fiscal supply. And in the current Middle East conflict, Japan's unprocured oil reserves, roughly actually 25 days or worse of domestic consumption, helped to prevent concern about domestic crude oil supply.

But at the same time, Japan's long-term strategy combines strengthening of domestic supply capacity through renewables and other measures with deepening networks among like-minded partners, such as Australia and the US and Canada. So those three principles of energy security that Japan proposed in this year's G7 summit are intended to scale this approach from Japan to entire G7. It's very interesting.

Ayako, as a follow-up question, let's talk about critical minerals. So recently, the Prime Minister emphasized faster cooperation and diversification of supply chains, including new rare-earth partnerships with countries like France and Australia. How significant, in your view, is this shift in reducing reliance on concentrated supply sources for critical minerals?

And do you think there's a possibility this extends to other sectors or goods? Yeah, the significance is real. But it's also easy to overstate if you imagine this as an instant fix.

So what's changing here is the mindset, actually, treating critical minerals not as a purely national procurement issue, but as a shared G7 residence program. So if G7 countries build and connect stockpiles, you get two benefits. First, actually, you can reduce everyone's pennies and holds at the same time.

It's a problem during stocks, price spikes, export control, and shipping disruptions. Second, actually, coordination creates leverage. It can support longer-term conducting on joint procurement, which helps pull supply away from single concentrated sources.

But the biggest constraint is that, actually, connection risk isn't only about mining. A lot of vulnerability sits in processing and refining, plus, actually, mainstream components like, actually, magnets. So partnerships with countries like France and Australia matter most if they are paired with investment across the chain, defining capacity, recycling, and substitution and R&D, and transparent standards.

And yes, actually, this logic likely extends beyond critical minerals. We've already seen similar paybacks in semiconductors and batteries for ensuring strategic reserve and coordinated industrial policy. I'll add pharmachemical ingredients and other foundational minerals and the candidates.

So common thread is, actually, where a stock in one bottleneck country can escalate through the whole economy, government will increasingly see diversification as a security policy, not just trade policy. Ayako, fascinating. Really appreciate you sharing the view from Japan.

I want to thank all our speakers for their insights. This communication is provided for informational purposes only. Please read the J.P.

Morgan research reports related to its content for more information, including important disclosures. Copyright 2026 J.P. Morgan Chase & Co.

All rights reserved. This episode was recorded on June 17, All rights reserved. This episode was recorded on June 17, 2026.