Analysis

Global Economic Growth 2026: World Bank Cuts Forecast to 2.5%

Published

2 months ago

June 28, 2026

The World Bank projects global growth at 2.5% in 2026, the weakest since the pandemic, as the US-Iran conflict drives energy price spikes, inflation, and tighter monetary policy worldwide.The World Bank’s mid-2026 baseline carries a number that markets have had to absorb slowly: global GDP growth of 2.5% this year — the weakest since the pandemic — and the culprit is clear.

The World Bank’s latest Global Economic Prospects report identifies the US-Iran conflict that began in late February 2026 as the central shock reshaping the international economic outlook. Energy prices have risen sharply, inflation has re-accelerated across multiple continents, and central banks that had been on the verge of easing cycles have instead begun signalling hikes. The combination has compressed household incomes, widened fiscal deficits, and created a global policy dilemma — fight inflation or protect growth — that has no clean answer.

The Anatomy of the Slowdown

Emerging market and developing economies (EMDEs) face what the World Bank characterises as their weakest per capita income growth since the pandemic era. Growth is projected to decelerate across all EMDE regions in 2026, with the Middle East, North Africa, Afghanistan, and Pakistan bearing the worst damage given direct exposure to the conflict, higher energy import costs, and disrupted shipping. South Asia remains the fastest-growing EMDE region but has nonetheless seen forecasts revised downward.

The mechanism of transmission is threefold. Direct energy price exposure drives headline inflation and suppresses real consumer spending. Disruptions to Strait of Hormuz shipping — which handles roughly 20% of global oil trade — have compressed supply chains and added a risk premium to shipping costs more broadly. And the expectation of prolonged tighter monetary policy has pushed sovereign borrowing costs higher for indebted developing economies.

The Rio Times Global Economy Briefing captured the daily rhythm of the uncertainty: “Whether the US-Iran ceasefire holds. Renewed strikes would push oil higher and add to the inflation problem the Fed is already confronting.” As of the week of June 28, markets remained on edge about the durability of the ceasefire following reports of Iranian targeting of US military assets, which temporarily pushed Brent crude higher and triggered a brief equity sell-off before the market recovered.

Advanced Economies: Slow But Not Collapsing

Advanced nations face a different but related challenge: growth that was already below trend has been further dragged by energy costs and the policy response to inflation. Deloitte’s 2026 Global Economic Outlook noted that after years of disruptive US trade policy, the global trading system has partially reorganised — with numerous bilateral trade deals struck between non-US countries as an alternative to the US-centric framework.

France is projecting GDP growth of just 0.9% in 2026, according to Banque de France, with the contribution of net exports turning negative. Germany and Japan face their own exposure to the China Shock 2.0, as Chinese high-tech exports crowd into categories where both countries previously held competitive advantage. The US itself is navigating a narrowing current account deficit that reflects weaker domestic demand rather than export strength — an ambiguous signal that the Federal Reserve has explicitly flagged as complicating its rate decisions.

Fiscal Pressure and the Poverty Gap

One consequence of the conflict-driven slowdown that policy discussions often underweigh is the distributional impact on the world’s poorest economies. Low-income countries are projected to grow at 5.4% in 2026 — 0.3 percentage points below prior forecasts — as energy import costs consume fiscal space that would otherwise go to infrastructure, healthcare, and education. The World Bank projects that gains in per capita income, averaging 2.7% annually through 2027–28, will be “insufficient to significantly reduce poverty” given the breadth of the setback.

Fiscal pressures will limit governments’ ability to reduce food insecurity and create jobs — a combination the World Bank regards as a medium-term political risk as well as a humanitarian one. A newly identified Ebola outbreak in a low-income economy adds a further downside tail to the forecast.

The 2027 Recovery Thesis

The World Bank’s forward guidance is that a recovery should materialise in 2027–28, driven by an assumed decline in energy prices as supply adjusts and the conflict’s acute phase passes, and a rebound in global trade activity. That recovery is explicitly conditional on the ceasefire holding and conflict not escalating to involve Gulf oil infrastructure more directly. Recoveries are projected across all EMDE regions in 2027–28, but the pace will depend heavily on policy buffers — many of which were depleted fighting the post-pandemic inflation.

The upside scenario, acknowledged in the World Bank report, involves broader AI adoption lifting productivity and economic activity. Estimates of the productivity impact of AI vary “widely,” and the report notes that different scenarios “could lead to markedly different growth paths.” The AI tailwind is real but front-loaded in advanced economies, and access to the technology in lower-income countries remains constrained by infrastructure gaps and digital divides.

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Analysis

Pakistan’s Twin Engines: Remittances and Stock Market Surge

Published

6 hours ago

August 14, 2026

Abdul Rahman

Pakistan closed out July 2026 with two of its strongest economic signals in years — even as the underlying trade picture tells a more cautious story. Workers’ remittances hit $3.6 billion in July, up 13% year-on-year, the State Bank of Pakistan confirmed on Monday, August 10 (The Nation). Meanwhile, the benchmark KSE-100 index has delivered one of its strongest runs in the region.

Remittances: A Record Year, Confirmed

July’s $3.6 billion inflow marked a 4.5% increase over June, continuing a pattern that has defined Pakistan’s external accounts throughout FY2026. According to the Ministry of Finance’s monthly economic outlook, cited by the Express Tribune, workers’ remittances rose to $41.6 billion for the full FY2025-26, up 8.6% from $38.3 billion the previous year (Express Tribune). Saudi Arabia and the UAE remain the dominant sources, together accounting for close to half of total inflows, according to earlier-year tracking from Pakistan & Gulf Economist, alongside notably strong growth from the UK and EU corridors.

The KSE-100’s Extraordinary Run

Pakistan’s stock market has been the standout story of FY2026. The benchmark KSE-100 index surged 27.6% year-on-year to 176,042 points by July 29, 2026, with market capitalisation rising 19.4% in rupee terms and 21.6% in dollar terms, according to the Ministry of Finance’s own reporting (Express Tribune). That kind of rally, sustained over a full fiscal year, places Pakistan’s equity market among the best performers globally for the period — a striking outcome for an economy still working through an active IMF program.

The Trade Picture Is Less Flattering

The same Ministry of Finance report is candid about where the pressure points remain. Exports declined to $30.8 billion for FY2025-26, down from $32.3 billion the prior year, while imports rose sharply to $64.5 billion from $59.1 billion. Foreign direct investment fell to $1.64 billion from $2.48 billion, and portfolio investment remained negative for the year.

Despite that widening trade gap, Pakistan’s current account deficit was contained to just $139 million for the full fiscal year — a remarkably narrow figure that the finance ministry credits directly to record remittance inflows. Foreign exchange reserves reached $22.7 billion by mid-July 2026, and the rupee actually appreciated slightly to Rs277.80 against the dollar, compared with Rs283.05 a year earlier. Inflation averaged 7.1% across FY2026, staying within the government’s target band despite elevated global oil prices.

The IMF Backdrop

Pakistan’s macroeconomic stabilization continues under the IMF’s Extended Fund Facility. The Fund’s most recent review found fiscal performance “strong,” with a primary surplus of 1.6% of GDP expected for FY26, in line with program targets, while gross reserves climbed to $16 billion by end-2025 from $14.5 billion six months earlier (IMF). A separate 28-month Resilience and Sustainability Facility arrangement, approved in May 2025, continues supporting Pakistan’s climate and disaster-resilience reforms.

The Risk the Ministry Itself Flagged

Pakistan’s own finance ministry has been unusually direct about the fragility beneath these headline numbers, warning that renewed escalation between the United States and Iran could trigger volatility in global energy prices, trade flows, and financial markets — risks that could disrupt Pakistan’s improving trajectory given the country’s continued exposure to Gulf labor markets and energy import costs (Express Tribune).

The Bottom Line

Pakistan’s FY2026 story is genuinely two-sided: a stock market and remittance base performing better than almost anyone forecast a year ago, financing a current account that has stayed remarkably close to balance — set against an export sector that continues to shrink and a foreign direct investment picture that remains stubbornly weak. Whether the KSE-100 rally and remittance strength can persist long enough for structural export reform to catch up remains the defining question for Pakistan’s economy heading into FY2027.

How much did Pakistan’s remittances grow in July 2026?

Pakistan’s remittances reached $3.6 billion in July 2026, up 13% year-on-year, while the KSE-100 stock index surged 27.6% year-on-year to 176,042 points by late July.

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Analysis

China’s Trade Surges to $4.46 Trillion — the Real Story

Published

6 hours ago

August 14, 2026

Abdul Rahman

China’s foreign goods trade maintained strong momentum through the first seven months of 2026, with total import-export value reaching 30.13 trillion yuan ($4.46 trillion), up 17.3% year-on-year, according to General Administration of Customs data released Friday, August 7 (CGTN).

Imports Are Outgrowing Exports — A Notable Reversal

The headline figure obscures a more interesting shift beneath it. Exports rose 14% to 17.44 trillion yuan, while imports climbed a faster 22% to 12.69 trillion yuan — meaning import growth has been outpacing export growth, according to the same customs data. That’s a meaningful departure from the pattern that dominated Chinese trade data through much of the mid-2020s, when policymakers leaned heavily on export-led growth while domestic demand lagged.

Mechanical and electrical products remain China’s dominant export category, totaling 11.12 trillion yuan and growing 21.2% — now accounting for 63.8% of China’s total exports, underscoring how central advanced manufacturing and electronics remain to the country’s trade profile.

Where the Growth Is Coming From

China’s trade diversification strategy continues to show measurable results. Trade with ASEAN grew 20% in the first seven months of the year, trade with the EU rose 9.5%, Latin America climbed 15.4%, and Africa grew 18.9%. Trade with Belt and Road Initiative partner countries reached 15.36 trillion yuan, up 15.5%, while trade with other APEC economies hit 18.03 trillion yuan, up 21% (CGTN).

This diversification has been years in the making, accelerated by tariff pressure from Washington. Trading Economics data from earlier in 2026 showed Chinese exports to the U.S. declining even as overall export volumes hit record highs, as manufacturers redirected shipments toward Southeast Asia, Africa, and Latin America to offset the impact of U.S. tariffs (Trading Economics).

A Growth Target Built on Trade Strength

The strong trade numbers are consistent with the trajectory Premier Li Qiang set out earlier in the year, when Beijing targeted 4.5%–5% GDP growth for 2026, down modestly from the prior year’s target, which itself was met largely through a roughly one-fifth surge in China’s trade surplus. Economists have been skeptical that Beijing will pivot away from export dependence any time soon, noting that recent policy documents pledged a “notable” increase in household consumption without offering many concrete mechanisms to deliver it (Investing.com/Reuters).

The US-China Undercurrent

Trade tensions with Washington remain an active backdrop rather than a resolved issue. The South China Morning Post’s ongoing coverage notes Beijing has launched an investigation into imported printers and photocopiers that use foreign-developed software, a direct response to the latest round of U.S. sanctions — illustrating how the trade relationship continues to generate tit-for-tat regulatory measures even as overall Chinese trade volumes with the rest of the world climb (SCMP).

Why the Import Surge Matters

A 22% jump in imports against 14% export growth is a data point worth watching closely for anyone tracking global demand signals. Stronger Chinese imports typically translate into higher demand for commodities, industrial inputs, and consumer goods from trading partners — a potentially supportive signal for economies like Indonesia, Malaysia, and Australia that count China as a top trading partner. Whether this reflects a genuine, durable shift toward domestic consumption-led growth, or simply reflects higher commodity prices flowing through import values, will become clearer as full-year 2026 data consolidates.

How much did China’s trade grow in 2026?

China’s total goods trade reached 30.13 trillion yuan ($4.46 trillion) in the first seven months of 2026, up 17.3% year-on-year, with imports (+22%) growing faster than exports (+14%) for the period.

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Analysis

Malaysia’s Growth Accelerates to 5.8% as Data Centre Boom Defies Global Uncertainty

Published

8 hours ago

August 14, 2026

Abdul Rahman

Malaysia’s economy expanded 5.8% year-on-year in the second quarter of 2026, accelerating from 5.4% in the first quarter, according to preliminary estimates from the Department of Statistics Malaysia — a pace that has caught even optimistic forecasters off guard (Trading Economics).

What Drove the Acceleration

Chief Statistician Datuk Seri Dr. Mohd Uzir Mahidin attributed the strength to resilient domestic demand and broad-based improvement across productive sectors. The sectoral breakdown shows where the momentum concentrated: mining and quarrying rebounded sharply to 10.2% growth (from -2.1% in Q1), driven by higher natural gas production, while manufacturing accelerated to 7.5% (from 5.9%), supported by increased output of electrical, electronic, and optical products alongside petroleum and chemical goods (Trading Economics).

Services growth eased slightly to 5.4% from 5.6%, and construction moderated to 6.6% from 7.0%, while agriculture contracted 3.7% amid weaker oil palm and fishing output. For the first half of 2026 overall, Malaysia’s economy grew 5.6%, well above the 4.5% pace recorded in the same period a year earlier.

The Data Centre Effect

The through-line across nearly every recent Malaysia growth story is the same: artificial intelligence infrastructure. The IMF’s July 2026 World Economic Outlook Update kept Malaysia’s full-year GDP forecast unchanged at 4.7%, naming the country — alongside South Korea, Taiwan, and Thailand — as one of Asia’s top net exporters of AI-related hardware (W.Media).

The OECD’s 2026 Economic Survey of Malaysia echoes the point, noting that robust global demand for data centres and AI has buoyed the economy even through a temporary slowdown in early 2026, helping Malaysia post sizeable improvements in material living standards (OECD).

Malaysia’s finance ministry has credited the “Ekonomi MADANI” reform agenda for reinforcing this momentum, pointing to continued AI and data centre investment “supported by facilitative policies and a conducive investment environment,” alongside steady household spending buoyed by public-sector pay reforms and targeted cash assistance programs (Ministry of Finance Malaysia). Unemployment has fallen to 2.9%, the lowest in a decade.

Forecasts Are Playing Catch-Up

The Q2 beat is already forcing revisions. MBSB Investment Bank said it is reviewing its current 4.5% full-year GDP forecast upward following the stronger-than-expected second-quarter print, citing continued strength in the manufacturing Purchasing Managers’ Index, which held at 50.7 in July — comfortably in expansion territory (The Star). Rising tourist arrivals are also expected to support consumption through the second half of the year.

The Risk Still on the Table

None of this insulates Malaysia entirely from external shocks. The OECD survey flags that soaring global energy prices and disruptions in commodity supply chains — largely a function of the ongoing Middle East conflict — remain key vulnerabilities, and recommends Malaysia step up fiscal consolidation, including reducing fossil fuel subsidies and reintroducing a broader value-added tax, while protecting low-income households through targeted transfers.

The finance ministry itself has acknowledged the risk directly, noting that a prolonged West Asia conflict could disrupt global supply chains through higher energy, logistics, and input costs — pressures serious enough that Putrajaya has formalized a crisis management task force under the National Economic Action Council to monitor developments and coordinate real-time policy responses.

Bottom Line

Malaysia’s Q2 number is one of the clearest examples yet of how the AI infrastructure buildout is reshaping growth trajectories across export-oriented Southeast Asian economies. The question for the second half of 2026 is whether that momentum can offset the same energy and supply-chain risks that are complicating growth stories from Jakarta to Singapore.

How fast did Malaysia’s economy grow in Q2 2026?

Malaysia’s GDP grew 5.8% year-on-year in Q2 2026, up from 5.4% in Q1, driven by a rebound in mining, accelerating manufacturing, and sustained data centre and AI-related investment.