Emerging economies have so far withstood the energy shock caused by the conflict in the Middle East better than expected. The surge in oil, gas and energy-related input prices was rapid, but less inflationary than in 2022. While monetary policy easing cycles have been interrupted in many countries, most central banks have been able to keep their policy rates unchanged since last February. Emerging financial markets have not faced a widespread loss of confidence, while macroeconomic buffers are stronger than in the summer of 2022, helping to absorb the rise in energy costs.
Despite the war in Iran, the closure of the Strait of Hormuz and the temporary surge in energy prices, emerging economies have so far avoided a crisis scenario. Their growth is slowing marginally, inflation remains contained in most countries and financial markets have not collapsed. The most powerful growth engine is coming from Asia: global demand for chips, data centers and electronic goods linked to artificial intelligence is offsetting part of the oil shock and reshaping the external balances of several emerging countries.
The impact of the energy shock on the economic variables of emerging countries.
Key indicators for emerging countries: Real GDP, inflation, credit, current account balance, fiscal balance, public debt.
Panoramas as of 13 July 2026: a severe shock with varying effects in the North Africa/Middle East region; heightened fragilities in Sub-Saharan Africa; Latin America less exposed to the energy shock; Asia with strengths to face the energy crisis.
China’s economic growth continues to be characterised by a significant disparity between the robust performance of the export sector and the fragility of sectors that rely on domestic demand. This gap has even widened this year, fuelling concerns about China’s growth model and its imbalances with its trade partners. In recent months, China has once again demonstrated its resilience to external shocks. The impact of the energy crisis caused by the war in Iran on economic activity and inflation has been limited. Furthermore, exports have benefited from the surge in global demand for goods linked to AI and green technologies. This momentum is expected to continue in the short term.
South Korea is one of the countries most exposed to the global energy shock, yet it also reaps substantial benefits from soaring demand for artificial intelligence-related products. Despite the country's dependence on hydrocarbon imports, with the vast majority transiting through the Strait of Hormuz, short-term growth forecasts remain highly optimistic, bolstered by a robust export sector. Factors such as inflationary pressures, the depreciation of the won, and rising household debt, justify monetary tightening. In the longer term, the government is banking on an integrated AI ecosystem, encompassing data centres, robotics and advanced materials) to strengthen its key position in global value chains.
India is currently in a stronger position than it was in 2022 to cope with the new energy shock. The fiscal capacity to support the economy has increased, and inflation is more contained. Although a slowdown is anticipated (from 7.7% for FY 2025/2026 to 6.7% for the current year), economic growth is expected to remain robust. However, the government’s subsidy policy is likely to delay the consolidation of public finances. Despite the expected reduction in energy subsidies—supported by lower oil prices — food subsidies could rise due to a poor monsoon.
Indonesia is facing two external shocks: rising energy prices and capital outflows. The decline in governance quality has indeed impacted foreign investor confidence. Assuming that the conflict in the Middle East subsides, pressures on external accounts and energy subsidy costs are expected to ease. However, oil prices are expected to remain consistently above their early-2026 levels, perpetuating the risk of fiscal slippage. Investors remain cautious, and rupiah volatility is high.
Despite the energy shock, Poland’s economic growth is expected to remain robust and could even accelerate slightly in 2026. This growth is being driven by a recovery in investment, while consumption, although slowing, will continue to be one of its main pillars. Inflation remains moderate despite rising fuel prices and is expected to stay within the Central Bank’s target range. The external accounts, meanwhile, are very solid and can accommodate for the rise in energy costs. However, the trajectory of public debt is a cause for concern, particularly given that the government’s lack of a qualified majority is hampering fiscal consolidation.
Recent political tensions are once again drawing attention to Romania. The next government’s priority will be to further consolidate public finances; otherwise, the public debt-to-GDP ratio will continue to deteriorate. In addition, Romania appears to be the Central European country most adversely affected by the energy shock, although the situation is still manageable. Economic growth has been sluggish since 2024 and is not expected to improve in 2026. Inflation has now exceeded 10%, but it is expected to ease from September as the effects of the VAT rate hike subside. Monetary authorities are expected to adopt a cautious approach in the short term
Turkish growth has slowed significantly since Q4 2025, and the oil shock since March has led to a significant erosion of foreign exchange reserves, a more pronounced depreciation in the lira than in other emerging-market currencies, and pressure on domestic bond yields. The risk of disruptions to hydrocarbon and fertilizer supplies is limited. However, the revision of official inflation forecasts, the subsequent tightening of monetary policy, and warnings of the finance minister about potential budget slippage have dampened investor sentiment, which is further unsettled by the AKP’s strategy of systematically sidelining potential rivals in the presidential elections. There are often recurring financial tensions in Türkiye
The Brazilian economy continues to withstand an ultra-restrictive monetary policy stance. In an election year, fiscal policy has become increasingly active to help cushion the impact of high interest rates and mitigate the effects of the oil shock on households' purchasing power. The resilience of economic activity comes at the cost of slower disinflation and a shift in the fiscal burden towards public banks. The policy mix—protective fiscal policy versus restrictive monetary policy—complicates the adjustments of prices, public finances, and inflation expectations amid more frequent supply shocks. The oil price shock has helped strengthen both external accounts and the reais
The presidential election on 21 June 2026 was won by Abelardo de la Espriella, an outsider who distances himself from the traditional figures of the Colombian right. His programme, which represents a total departure from that of the outgoing government, draws clear inspiration from the economic liberalisation advocated by Argentine President Javier Milei and the security measures of Salvadoran President Nayib Bukele. His accession to power in August therefore heralds major shifts in economic and fiscal policy, as well as in the fight against drug trafficking. Although economic growth has remained largely unaffected by the closure of the Strait of Hormuz, it is expected to slow in 2026, primarily due to more restrictive monetary and fiscal policies
Mexico’s economic outlook remains modest. It is characterised by a slowdown in private consumption and investment still held back by uncertainty and a lack of new infrastructure projects. Exports, the main drivers of economic activity, have benefited from the US regionalisation strategy, but the USMCA renegotiation is introducing new constraints. The US is tightening the conditions for accessing its market, threatening the competitiveness of the manufacturing sector, which remains dependent on Asian inputs. At the same time, rising public debt, continued support for Pemex and falling oil revenues are drastically reducing fiscal margins, exacerbating the country’s economic challenges.
Saudi Arabia may not be the Gulf economy most vulnerable to the conflict in Iran, but it is by no means unaffected. This year’s growth forecasts have been significantly downgraded due to the decline in oil production. Nevertheless, excluding hydrocarbons, economic activity remains resilient. Crucially, the country has been able to capture some of the trade flows blocked in the Strait of Hormuz thanks to its infrastructure on the Red Sea. In the short term, the rise in oil exports will improve its external accounts. On the other hand, the recovery in public finances will be less pronounced due to soaring budgetary expenditures. However, there is still ample fiscal headroom. Public debt levels are moderate and the conflict has not undermined creditors’ confidence
The impact of the war in Iran and the energy crisis on the Egyptian economy are currently limited. The economy has benefited from macroeconomic fundamentals strengthened by international support and the increased credibility of its economic policy. The momentum for economic recovery and disinflation, which began in 2025, remains intact. The main source of vulnerability – foreign exchange liquidity – has only slightly deteriorated, supported by increased flexibility in exchange rates. Nevertheless, while the Egyptian economy’s vulnerability to external shocks is diminishing, it remains high, particularly due to the growing imbalance in the energy sector and dependence on volatile capital flows
Advanced economies proved resilient in 2025 despite a tariff shock that disrupted global trade. By early 2026, they were on track for faster growth and lower inflation. A fresh shock linked to the war in the Middle East, however, is reigniting inflation while slowing growth. This mix primarily reflects the impact of a likely decline in purchasing power on consumer spending. However, many of the factors that underpinned 2025 growth — AI development, higher defense spending (especially in Europe), and continued trade growth — are set to persist in 2026. They would be reinforced by an acceleration of electrification, against a backdrop of rising oil prices and an AI-driven rise in electricity demand.
Before the outbreak of war in the Middle East in late February, our 2026 forecasts for the major advanced economies pointed to higher growth and lower inflation. However, this new conflict in the Persian Gulf is a game-changer. The resulting energy shock is of a stagflationary nature: growth forecasts are being revised downward and inflation forecasts upward, with variations observed across different countries. Most of the supportive factors that were present in 2025 are expected to remain in place in 2026, providing some buffer against the shock. Under the central scenario of the conflict losing intensity by the end of the second quarter, growth forecasts for 2026 are lowered by 0
US growth remains robust, exhibiting strong momentum, but is still reliant on a narrow base – AI on the activity side and healthcare for jobs. The energy shock presents a new challenge, and its impact will depend on both the duration and severity of the Iran war. In any case, this situation is likely to drive inflation further above the target. Our baseline scenario projects 2.4% annual GDP growth in 2026 (down 0.3pp vs. the pre-conflict outlook) and 2.5% in 2027 (+0.3pp). Inflation is expected to reach 3.2% y/y in 2026. Against this backdrop, we expect the Fed to adopt a two-sided stance, with balanced risks around the Fed Funds rate and a hold as the baseline scenario
According to our forecasts, the impact of the conflict in the Middle East is likely to restrict GDP growth to 1.0% in 2026 and 1.3% in 2027 (down from 1.6% for both years prior to the conflict). Private consumption will be hit by falling real wages (with inflation projected at 3.0% in 2026 and 3.3% in 2027, compared to initial estimates of 1.9% and 2.3%). However, the high savings rate will enable households to mitigate the impact over time. Economic activity could suffer from less favourable interest rate dynamics (we anticipate a 50bp increase in ECB rates in 2026). However, the ongoing investment in defence, AI and electrification is expected to continue and boost intra-EU trade. The expected deterioration in public finances in 2026 will be significantly less severe than in 2022.
After two years of recession, German growth began to recover in 2025. We expect it to strengthen in 2026, driven by the ramp-up of investment plans. We are, however, revising our forecasts downwards, as the German economy remains vulnerable to the current shock to energy prices (+0.8% in 2026 [-0.6pp] and +1.1% in 2027 [-0.4pp]). This will weigh on private consumption due to the impact of rising inflation (3.2% in 2026 [+1.6pp] et +3.5% in 2027 [+1.2pp]) on the purchasing power of wages. The fiscal trajectory, meanwhile, is expected to remain broadly unchanged. Public debt is set to continue rising towards 70% of GDP by 2030, which, in the current context, would maintain upward pressure on long-term interest rates.
Since rebounding in Q2 2025, French growth has been relatively robust. Things are not expected to have changed in Q1 2026, with growth supported in particular by precautionary spending. In Q2, higher inflation (and thus lower purchasing power) should weigh on household consumption, whilst support from public finances is expected to be more moderate than in 2022. However, French growth is expected to remain resilient, driven in particular by public investment (both French and European) in defence and private investment in AI. Overall, we are revising our growth forecasts to 1% in 2026 (-0.3 pp) and 1.1% in 2027 (-0.2 pp); and our inflation forecasts to 2.4% in 2026 (+1.3 pp) and 1.9% in 2027 (+0.4 pp)
Italy entered 2026 with moderate momentum, posting a real GDP growth of +0.3% q/q in Q4 2025. However, the economy faces increasing risks due to its reliance on LNG and its exposure to the Strait of Hormuz. Consequently, growth is projected to be around +0.7% in 2026 (-0.3 pp), accompanied by weaker investment, consumption and exports. Inflationary pressures are also mounting, as are energy costs for businesses. Despite these challenges, foreign trade remains adaptable. Fiscal consolidation is progressing, although fiscal capacity remains limited.
The Spanish economy is in a favourable long-term cycle, characterised by strong growth, underpinned by domestic demand. In 2026, outperformance relative to the Eurozone is expected to continue, but growth is projected to decelerate due to the weakening of its structural foundations (available labour), a lack of momentum (low productivity) and the inflationary shock. It is projected to reach 2.3% in 2026 (revised downwards by 0.2pp). Inflation is expected to rise to 3.3% (revised upwards by 1pp), which will impact household purchasing power. However, public finances are expected to have the capacity to mitigate this impact without jeopardising the trajectory of public debt ratio reduction.
EcoPerspectives is the quarterly review of advanced economies (member countries of the Organisation for Economic Co-operation and Development) and China.
It provides an outline of several advanced economies using indicators for the past quarter and it looks ahead in order to better understand and anticipate the main economic problems of the countries in question.
For EcoPerspectives, economists from the advanced economies team regularly monitor the key economic indicators of selected countries. In particular, our experts use the quarterly forecasts provided by BNP Paribas (for growth, inflation, exchange rates, interest rates and oil prices). Each economist analyses the economic situation of one or more countries, based on the available indicators, in order to see how they change, including the industrial production index, quarterly gross domestic product (GDP) and inflation forecasts, the consumer price index (CPI) and the producer price index (PPI), and employment and unemployment figures. How various stakeholders’ views evolve is also studied and analysed closely (e.g. household confidence and business climate). The author comments on the main factors that influence and determine the economic activity of the country concerned and the economic outlook for the coming quarter.
