Global Economy to Grow 2.5% in 2026 Despite Energy Price Shock

The global economy is expected to grow by 2.5% in 2026, despite the energy price shock caused by the Iran war spreading to the Red Sea.

This forecast comes from CommBank, which notes that spot oil prices have not exceeded their historical range so far this year. However, if the Strait of Hormuz remains partly closed, oil prices will increase sharply, leading to higher inflation and slower economic growth.

The US economy remains strong, driven by a strong labor market and loose budget policy. The unemployment rate has peaked, and growth in employment costs remains solid. CommBank expects the Federal Reserve to begin a mild tightening cycle on September 17, 2026, with three 25 basis point hikes taking the funds rate to 4.25-4.50%.

In contrast, China's economy has lost momentum, with GDP growth slowing from 5.0% in Q1 to 4.3% in Q2. The divergence between export and domestic economies persists, driven by the government's focus on technology self-sufficiency and dominance in strategic industries.