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ARTHA

Even as global growth impulses displayed a turnaround in mid-2026. Under adverse scenarios involving prolonged
the second half of 2025, the inflation front was quite conflict and higher energy prices, global growth could
encouraging with global headline inflation moderating slow down further to 2.5-2 per cent, highlighting
from 5.8 per cent in 2024 to 4.1 per cent in 2025, mainly significant downside risks.
due to benign global commodity prices. However, despite
stable growth, world merchandise trade volume growth The outlook for 2026 remains uncertain due to global
moderated to 2.4 per cent in 2025, down from 2.8 per cent policy instability caused by geopolitical risks, volatile US
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in 2024 , mainly due to higher tariffs imposed by the US. tariffs, and ongoing as well as emerging conflicts,
particularly in West Asia. The West Asian nations control
The global economy in 2025 performed better than around 40 per cent of the world’s oil reserves and the
initially anticipated, supported by the following three recent conflict between US-Israel and Iran spilling into the
important factors: West Asian nations have increased global benchmark
Brent prices by around 80 per cent (compared to 27th
First, trade volumes increased in early 2025 February 2026 before the war began), to around US$128
because of advance shipments in anticipation a barrel (as on 2nd April 2026). Prices have also
of higher tariffs by the US. increased for natural gas, petroleum products and coal,
intensifying inflationary pressures, risking a domino-effect
on markets and the global economy. The US announced a
Second, global financial conditions eased in two-week temporary ceasefire on 9th April 2026, but
the second half of 2025 because of underlying geo-political conditions remain fragile amid
accommodative monetary policy which uncertainties surrounding negotiation outcomes.
supported investment. Central banks in major
advanced economies initiated cautious easing
that lowered borrowing costs and improved Rising geopolitical tensions in West
capital access, particularly for emerging Asia pose upside risks to crude oil
markets at the back of a depreciating dollar.
prices and global growth in 2026

Third, technology-related investment, especially In this context, This article analyses trends in GDP,
AI-linked capital expenditure, boosted inflation, and trade across five major economies—the US,
investment impulse in advanced economies.
UK, EU, China, and Japan—within the broader global
economic context.
The continuation of these factors was also expected in
2026. The International Monetary Fund (IMF), in the
World Economic Outlook, April 2026, projects global A. Trends in Growth
growth at 3.1 per cent in 2026, down by almost 0.3
percentage point from 3.4 per cent in 2025, due to the Global Growth is Precariously Balanced
increasing vulnerabilities emerging from the West Asia Amidst Risks
crisis. Global growth faces headwinds from increasing
energy prices and related disruptions, while supported by As mentioned earlier, the IMF expects global growth at 3.1
stable tariff rates, fiscal and monetary support and private per cent in 2026 and slightly lower growth at 3.2 per cent
sector adaptability. For these projections, the IMF in 2027, suggesting volatile growth momentum, albeit
assumes that the effects of the conflict will subside by with high risk, sectoral concentration and regional
differentiation.
In the US, real GDP growth on year-on-year (y-o-y) basis
was relatively resilient at 2.1 per cent in 2025, compared to
2.8 per cent in 2024. In 2025, the performance of US
economy was buttressed by the strength displayed in the
second half of the year aided by healthy private
consumption, technology-related (AI and semiconductor
ecosystems) capital expenditure, easy financial
conditions and export growth, propped up by a
depreciating dollar. According to the IMF, US real GDP
growth rate is expected to increase to 2.4 per cent in
2026 supported by fiscal incentives for corporate
investment and lower policy rates, even as the impact of
trade barriers gradually moderates.
3 WTO Global Trade Outlook October 2025
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