Page 18 - FIPI - Policy & Economic Report May 2026

May 2026 POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Elevated crude oil prices and shipping costs are expected to increase import bills, widen trade deficits,
and add to domestic inflationary pressures across the region. Higher energy costs could also impact
industrial production, transportation activity, and fiscal balances in several energy-importing economies.

The developments have reinforced the strategic importance of energy diversification, renewable energy
expansion, strategic petroleum reserves, and alternative trade routes for Asian economies seeking to
strengthen long-term energy security and reduce vulnerability to external supply shocks.

2. ADB revises down Asia growth outlook amid rising energy and inflation pressures

The Asian Development Bank (ADB), in its latest regional outlook update, revised downward its growth
forecast for developing Asia and the Pacific to 4.7 % in 2026 and 4.8 % in 2027 from the earlier estimate
of 5.1 % for both years, citing elevated energy prices, persistent inflationary pressures, and prolonged
supply disruptions.

The report noted that Asian economies remain highly vulnerable to crude oil and LNG supply disruptions
due to their dependence on imported energy. Rising fuel, shipping, and logistics costs have intensified
inflationary pressures and affected industrial production, household consumption, and trade
competitiveness across the region. Regional inflation for 2026 was revised upward to 5.2 % from 3.6 %
earlier.

India and China continued to display relatively stronger resilience supported by domestic demand and
industrial activity, although the ADB cautioned that prolonged disruptions in energy supply chains and
maritime trade routes could continue to affect regional growth and inflation over the medium term.

3. UN revises down global growth forecast amid rising inflation risks

The United Nations, in its mid-year update of the World Economic Situation and Prospects 2026, revised
downward its global growth forecast for 2026 to 2.5 % from the earlier estimate of 2.7 % amid rising
energy prices, persistent inflationary pressures, and increasing uncertainty in global trade and financial
markets. A modest recovery to 2.8 % is projected for 2027, although the UN warned that growth could
weaken further to 2.1 % under adverse conditions.

The report highlighted that elevated energy prices and supply chain disruptions continue to weigh on
economic activity and inflation dynamics across both advanced and developing economies. Global
inflation projections for 2026 were revised upward to 3.9 %, with developing economies expected to face
stronger inflationary pressures due to rising fuel, food, and transportation costs.

Europe and several energy-importing economies remain particularly vulnerable to commodity price
shocks and tighter financial conditions, while economies with stronger domestic demand and technology-
driven investments have shown relatively greater resilience. The report also noted that AI-related
investments and stable labour market conditions in select economies continue to provide partial support
to global growth.

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