Page 6 - Policy Economic Report -August 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

Executive Summary

The global economy remained resilient during August 2026, despite persistent geopolitical tensions,
elevated energy-price uncertainty and continuing disruptions to trade and supply chains. Economic
activity strengthened across several advanced economies during the second quarter, while the increasing
contribution of artificial intelligence, technology investment and services activity provided important
support to global growth. However, the recovery remained uneven, with subdued domestic demand,
fiscal constraints and supply-side vulnerabilities continuing to weigh on parts of the global economy. The
composition of growth also shifted towards services, as the impact of precautionary inventory
accumulation on manufacturing activity began to fade.

Global growth prospects remained stronger for emerging market and developing economies than for
advanced economies, although considerable divergence persisted across regions. Asia continued to be a
key contributor to global growth, supported by technology investment, manufacturing and resilient
domestic demand. At the same time, ASEAN economies recorded a notable improvement in
manufacturing activity, while China's recovery remained constrained by weak domestic demand. The
global inflation environment showed some moderation, but remained fragile. Global headline inflation
eased to 4.7 per cent in June 2026, although inflation remained substantially higher in emerging and
developing economies than in advanced economies. Persistent services-price pressures and renewed
increases in energy prices continued to pose risks to the disinflation process.

Global trade remained on an expansionary trajectory during the first half of 2026, with goods and services
trade recording strong year-on-year growth. Technology-intensive products, including semiconductors,
critical minerals, batteries and ICT equipment, emerged as important drivers of international trade,
reflecting the growing influence of AI investment and digitalization.

Against this global backdrop, India's domestic economy continued to demonstrate considerable
resilience. Real GDP growth during FY2025–26 was estimated at 7.6 per cent, supported by private
consumption, investment and services activity. Manufacturing and construction remained important
contributors to the supply-side expansion, while services continued to account for the largest share of
economic output. Expanding digital infrastructure, infrastructure investment, favourable demographics,
rising formalisation and improving financial-sector resilience continued to strengthen India's medium-
term growth fundamentals.

Growth is nevertheless expected to moderate during FY2026–27 as external headwinds become more
pronounced. Forecasts from major institutions place India's growth broadly in the 6.3–6.9 per cent range,
with higher energy prices, weaker external demand, geopolitical tensions and supply-chain disruptions
identified as key risks. Despite the expected moderation, India is likely to remain among the fastest-
growing major economies. Sustained public infrastructure investment, expanding manufacturing capacity,
digitalisation and emerging sectors such as electronics, semiconductors, pharmaceuticals, renewable
energy and defence manufacturing are expected to support medium-term growth.

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