The FOMC meeting on September 15–16 is expected to mark a turning point with the Fed’s first rate hike since May 2023. While there may have been economic reasons to hold off and maintain the status quo until now (some negative signals on the employment front and some encouraging ones on the inflation front), the conditions for a necessary recalibration now appear to be in place.
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This latest issue of MacroWaves is devoted to the repercussions of the energy shock and the rise of AI in emerging economies. The spring of 2026 saw mounting risks: war in Iran, the closure of the Strait of Hormuz and soaring energy prices. Yet, against all expectations, emerging economies withstood the shock remarkably well.Lucas Plé and Hélène Drouot, both economists in the Emerging Economies team, help us understand this resilience. Why did the energy crisis not cause the economy to derail? Can the rise of artificial intelligence offset the negative impact of rising energy prices? What are the identified risks of this increased dependence on technology?
Due to robust economic growth, India’s contribution to global GDP has increased by 1.8 times over the past twenty years, reaching 8.2% in 2025. However, this achievement conceals a significant issue: India is failing to develop a substantial, consumer-driven middle class. The underlying cause is the predominance of employment in low-value-added and largely informal sectors. The few high-value-added manufacturing sectors with strong job potential such as electrical equipment, electronics, automotive, chemicals and pharmaceuticals, are hindered by an unfavourable business environment, while a skills shortage is obstructing their advancement up the value chain. Furthermore, the highest-paying service jobs, particularly in IT, are threatened by artificial intelligence.
Statistical agencies often revise growth figures a posteriori, and generally upwards. But this takes time, as their data often become more comprehensive and accurate after two years. France is seeing the largest upward revisions over this timeframe, and, generally, these revisions are more pronounced in Europe than in the United States.
Central bank independence is not as hard-wired in modern institutions as they might appear to anyone born after the 1970s. That it went largely unchallenged in its first thirty years of history owes much to economic circumstances. But in today’s world of supply shock-driven inflation and large public debts, central banks face a much harder task. A series of controversial decisions since the global financial crisis, and years of above-target inflation leaves them more vulnerable than ever to political attacks on their independence. It is imperative to defend it, as there will be large costs to pay if it is lost.
The expectation that the surge in inflation, driven by this new energy shock, would be more moderate than in 2022 (with demand being less dynamic and supply less constrained) is confirmed. However, following the Memorandum of Understanding (MoU) signed in mid-June between the United States and Iran, inflationary risk has eased but has not disappeared. This MoU had seemed to reduce the risk of a severe escalation of the conflict, but since mid-July and the resumption of hostilities, it has entered a new phase of tensions, once again driving up hydrocarbon prices
The assessment of the July data is positive and reinforces the encouraging signals from May and June data. According to PMI business climate surveys, price pressures continued to ease, as did supply tensions through slightly shorter delivery times. The business climate in the manufacturing sector resumed improving, almost erasing the two months of previous decline. The business climate in the services sector and consumer confidence continues to recover. The July surveys are not impacted by the resurgence of tensions in the Middle East and by the ensuing rise in energy prices, partly because responses were, for the most part, collected beforehand. A relapse in August is highly likely if the geopolitical situation remains degraded
The memorandum of understanding, signed in mid-June between the US and Iran, improved US data before hostilities resumed in mid-July. Headline CPI posted its first monthly drop (-0.4% m/m) since 2020 in June, driven by gasoline prices (-9.7% m/m). It stood at 3.5% y/y, down sharply from May’s 4.2% but still 1.1pp above pre-conflict levels. Inflation excl. energy eased as well (-0.2pp to 2.7% y/y), edging back towards its February reading.
The acceleration in consumer price inflation since February 2026 is much less significant than in 2022, and it stopped in May and June 2026. The average CPI inflation rate for the fifteen main emerging economies was estimated at 4.6% y/y in June, against 4.8% in April. The inflationary shock is more moderate than in 2022 notably due to more limited spillovers to agricultural and food prices.
Both the Eurozone and the US grew 0.4% q/q in Q2 2026. For Europe, that is a welcome upside surprise: growth landed in line with expectations (France, Germany) or above them (Eurozone overall, Spain, Italy), even as the Middle East conflict delivered an energy-driven inflation shock. It confirms that European growth rests on foundations solid enough to absorb this kind of shock. Country-level detail was incomplete on the day, but manufacturing business sentiment held firm across the board in H1, underwritten by a set of drivers (AI, defence, electrification, aerospace). US growth, by contrast, undershot expectations. But it remained robust, powered by AI investment and accelerating household consumption. Both, however, drew in imports fast enough to weaken the headline growth figure.
Since the Trump administration returned to power, the already considerable disparity in energy policy between the United States and Europe has significantly increased. Admittedly, both are seeking energy sovereignty. But, while European policies remain focused on the low-carbon transition, the current US administration is focused on enhancing US dominance in the fossil fuel sector and rolling back measures that support the energy transition. At first glance, the energy crisis is exacerbating this divergence. The US has consolidated its position as the world’s leading exporter of hydrocarbons, and its strategic oil reserves have served as a buffer against the crisis
Equity indices, currencies, commodities, bond markets: Rates took off and tech slid further, leading Europe stock to outperform.
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.
Shocks are mounting, but growth is holding up. Although GDP figures for the Eurozone, France, Germany and the United States are due to be published on 30 July, our nowcasts indicate that growth returned to its trend rate in the second quarter. This rate is approximately 1% per annum in the Eurozone, France and Germany, and 2% per annum in the United States. In Q2, the Eurozone is expected to benefit from sustained growth in Germany, with investment plans gaining momentum, while France is expected to see a rebound in exports and residential construction after a poor start in Q1. In the United States, growth is expected to remain driven by non-residential investment and household consumption but will be held back by strong imports.
In June 2026, corporate creations cumulated over one year remained dynamic, reaching a historic peak according to INSEE, with 1,233,123 corporates set up, representing a 11.1% year-on-year increase. This momentum is not a recent phenomenon, as corporate creations have doubled over the last decade. During this same period, the rise in bankruptcies has been ten times lower, which serves to put current levels (approximately 70,000 bankruptcies cumulated over one year in March 2026) into perspective. Historically, the peaks and troughs in corporate bankruptcies are following those of corporate creations, with an average lag of 24 to 36 months
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.
A few months after the onset of a new global energy crisis, one might wonder about its implications for the low-carbon transition in emerging countries. The answer is not straightforward, as geopolitical uncertainties and the low-carbon transition are progressing according to different timelines, at least in part. The energy shock triggered by the blockade of the Strait of Hormuz calls for immediate action to secure hydrocarbon supplies, such as using strategic reserves. Conversely, the transition to low-carbon energy is a long-term process. However, the current circumstances are unusual: the low-carbon transition was initiated several years ago, and the Hormuz crisis marks the second major energy crisis in four years.
