Oxford Economics sees faster growth ahead, conditional on a peace that could still fall apart

The global economy is set to pick up speed in the second half of 2026 — but only if the US-Iran truce holds. Global GDP is expected to expand by 3.1% annualized in 2H, with the acceleration concentrated in developing economies, according to an Oxford Economics report seen by EnterpriseAM. The mechanism is straightforward — lower oil prices lift real disposable income and consumption. The condition to see it realized is less clear.

A coin flip peace

Oxford Economics puts the odds of a durable US-Iran agreement at 50-50. The conflict initially drove oil prices higher, lifted inflation, and weighed on growth. The ceasefire reversed that — sending prices lower and reopening the strait to shipping. But the truce is fragile. Renewed military strikes at the end of June mean the breakdown scenario is very much alive, and a return to hostilities would push inflationary pressure back up fast.

The supply chain exposure

Western AI investment has a strait-shaped vulnerability. US AI spending relies on components from Northeast Asia and ASEAN — regions exposed to disruptions in energy shipments through Hormuz. Critical components also depend on specialized manufacturers in South Korea and Germany, leaving the supply chain exposed to unexpected shocks.

China benefited from the disruptions, but that won’t last. Chinese exports benefited from the supply chain disruptions caused by the war, helping offset weakness in traditional export sectors and restrictions on refined petroleum products exports. But over the medium term, a stronger RMB, rising trade barriers, higher factory prices, and weaker global demand could leave China sitting on growing overcapacity.

The tariff calendar

New US tariffs are coming in July. The Trump administration will introduce new Section 301 tariffs to replace Section 122, which expires on 24 July. The replacement is expected to be marginally higher, targeting USD 25-30 bn in monthly revenue to help fund the One Big Beautiful Bill Act. The revised USMCA agreement, meanwhile, is no longer expected to lower tariffs, with current rates to stay in place indefinitely.

AND- Brussels and Beijing are heading for a collision. The European Commission expanded its trade-defense investigations against China to more than 50, with duties already imposed on electric vehicles, solar supply chains, and glass fiber. New economic security tools are also planned by September, raising the risk of Chinese retaliation.

What changes if the truce holds

Central banks get room to ease. Lower oil prices would reduce inflation pressures, giving central banks less reason to keep raising interest rates. The ECB’s case for additional hikes disappears — the Fed, the Bank of England, and the Bank of Japan are all expected to take a less aggressive path than the current one. A renewed escalation, though, pushes everyone back toward tightening.

Several elections could reshape the picture heading into 2027. US midterm elections are expected to produce a divided government even if Democrats secure both chambers, limiting prospects for additional fiscal stimulus while raising the odds of a debt ceiling standoff. Meanwhile, Israel’s parliamentary elections could influence ceasefire negotiations with Iran. German state elections may also test coalition stability and complicate the ECB’s outlook.

The biggest upside risk to the global outlook is stronger-than-expected AI investment and productivity gains, particularly in the US and Asia. Sizable spending on data centers, utilities, and major projects such as Australia’s 2032 Olympics could deliver a bigger growth boost than current forecasts assume.

MARKETS THIS MORNING-

Asia-Pacific markets were mixed in early trading this morning. South Korea’s Kospi was down 0.5% after Samsung’s 2Q preliminary earnings triggered a selloff that pushed the tech giant down 4.4%. Japan’s Nikkei was also down, while the Shanghai Composite and Hang Seng are looking at moderate gains.

The values in the table above are listed according to the market position as of 3:30pm IST / 2pm GST.