Page 11 - Policy Economic Report -August 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

stronger services activity and a recovery in German manufacturing output, where factory production
recorded its strongest expansion since January 2022.

The advanced-economy outlook therefore remains one of modest growth accompanied by a gradual
improvement in activity, rather than a broad-based acceleration. The sustainability of the recent
improvement will depend on whether stronger services demand can compensate for the fading effect of
inventory accumulation, while persistent energy-price volatility, supply constraints and geopolitical risks
remain important downside factors.

Growth Forecast - Emerging Market and Developing Economies

Emerging Market and Developing Economies (EMDEs) are expected to continue growing faster than
advanced economies, although the outlook remains uneven across regions. The IMF projects EMDE
growth at 3.9 per cent in 2026, followed by a recovery to 4.2 per cent in 2027. The moderation in 2026
reflects the impact of the Middle East conflict, higher energy costs, trade disruptions and tighter financial
conditions, with the effects varying significantly according to countries' exposure to energy imports,
commodity markets and global trade.

Within emerging economies, Asia continues to provide an important source of global growth, supported
by technology investment, manufacturing and resilient domestic demand. S&P Global retained its 2026
growth forecast for mainland China at 4.5 per cent, although weak domestic demand continues to
constrain the recovery. By contrast, South Korea's 2026 growth forecast was raised from 1.9 per cent to
2.8 per cent, following stronger-than-expected first-half performance. AI-related activity is expected to
remain an important driver of growth across several Asia-Pacific economies during the second half of the
year.

The divergence within emerging economies is also evident in business surveys. S&P Global ‘s July PMI data
showed a rebound in manufacturing activity across ASEAN, following several months of war-related
disruption. Thailand recorded its strongest manufacturing expansion of the year, while Vietnam also
registered exceptionally strong growth and Indonesia recorded one of the largest improvements. At the
same time, manufacturing momentum weakened in North America and moderated in mainland China and
India.

The outlook for emerging economies is also increasingly influenced by investment associated with critical
minerals, green-energy infrastructure, semiconductors and supply-chain diversification. Investment in
these sectors is creating opportunities for emerging economies to attract foreign capital and integrate
more deeply into global value chains. However, the benefits remain uneven and are increasingly
dependent on infrastructure availability, policy stability, trade access and the ability to develop domestic
productive capacity.

Overall, EMDEs are expected to remain an important source of global economic growth, but their
performance will continue to diverge significantly. Economies benefiting from technology investment,
manufacturing relocation and commodity demand are likely to outperform, while energy-importing and

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