Page 9 - Policy & Economic Report - July 2025

POLICY AND ECONOMIC
ROEILPO&RGTAS MARKET

Economy in Focus

1. A snapshot of the global economy

Global Economic Outlook

The global economy remained resilient during July 2026 despite heightened geopolitical uncertainty,
although the pace of growth continued to moderate. Economic activity was shaped by two opposing
forces: the adverse impact of renewed geopolitical tensions in the Middle East on global energy markets
and supply chains, and the continued acceleration of the global technology cycle driven by rapid advances
in artificial intelligence (AI), semiconductors and digital infrastructure. While easing commodity prices
following the reopening of the Strait of Hormuz temporarily moderated inflationary pressures, renewed
hostilities, elevated geopolitical risks, trade policy uncertainty and weak public finances continued to
cloud the global economic outlook.

The International Monetary Fund (IMF), in its World Economic Outlook Update (July 2026), projected
global economic growth at 3.0 per cent in 2026, improving to 3.4 per cent in 2027, broadly unchanged
from its April assessment. The IMF noted that while the global economy has weathered the Middle East
conflict better than initially anticipated, the negative supply shock arising from disruptions to energy
markets has only been partly offset by stronger technology-led investment and AI adoption. Economies
integrated into the global technology value chain are expected to benefit from stronger demand, whereas
energy-importing economies with limited participation in the technology sector continue to face relatively
weaker growth prospects.

The Asian Development Bank (ADB) also revised its regional outlook downward, lowering the growth
forecast for Developing Asia and the Pacific to 4.9 per cent in 2026 from 5.1 per cent projected earlier,
while maintaining the 2027 forecast at 5.1 per cent. The downgrade reflects prolonged disruptions to
global energy markets, higher freight and transportation costs, elevated geopolitical uncertainty and
weaker external demand. South Asia's growth outlook was similarly revised downward due to higher oil
prices, increased logistics costs and uncertainty surrounding remittance inflows, while downside risks
continue to stem from prolonged geopolitical tensions, tighter financial conditions and further escalation
of the Middle East conflict.

According to S&P Global Market Intelligence, geopolitical developments continued to represent the
principal downside risk to the global economy. The United States and Iran entered a phase of sustained
but calibrated confrontation, maintaining elevated risks to energy flows, maritime trade and commercial
shipping through the Strait of Hormuz. At the same time, Ukraine accelerated governance and energy-
sector reforms aimed at strengthening wartime resilience ahead of winter, while Venezuela shifted policy
priorities towards humanitarian relief and post-earthquake reconstruction. These developments
continued to influence commodity markets, investor sentiment, supply chains and financial market
volatility. Although lower commodity price assumptions have marginally improved the outlook for several
net oil-importing economies, renewed hostilities and volatile energy prices continue to pose significant
risks to global growth and inflation.

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