Global Economic Outlook: August 2026

S&P Global Market Intelligence's August 2026 global economic forecast reviews and updates include:

• Further evidence of economic resilience, with second quarter growth rates generally surprising to the upside, particularly in Western Europe.
• Moderating price pressures in S&P Global’s Purchasing Managers Index (PMI) data, with core inflation rates relatively stable in most major economies.
• Reduced risk of near-term US Federal Reserve tightening, although national monetary policy outlooks continue to diverge.  

What are the key growth forecast changes this month?

The 2026 real GDP growth forecasts for the eurozone and Western Europe have been raised by 0.4 percentage point, with broad-based upward revisions across economies following stronger-than-expected second-quarter releases.

Still, at 0.8% and 1.0%, respectively, the projected annual growth rates remain relatively subdued compared with other major economies and regions. This reflects various headwinds, including fiscal constraints and recent heatwaves, while most economies are net energy importers.

Why was the Asia-Pacific growth forecast raised?

The largest upward revision in the region is for South Korean growth, from 1.9% to 2.8%, following strong data in the first half of the year. While growth is forecast to moderate in the second half, AI-related activity is expected to remain a key driver of growth for many economies in the region.

The 2026 growth forecast for mainland China is unchanged at 4.5%, at the lower end of the official target range, hindered by relatively weak domestic demand. 

What are PMIs signaling about global economic conditions?

S&P Global’s recent Purchasing Managers Index (PMI®) data signal resilient global economic conditions. The global composite output index improved in each of the four months through July, albeit gradually. The rebounds in the eurozone and UK composite indexes stood out in July’s data, although from rather weak levels, while the US index also posted a large rise.

Our global real GDP growth forecast for 2026 was raised in both July and August. However, at 2.4%, it remains 0.5 percentage point below February’s preconflict projection. Flash PMI data will be released on the Aug. 21. 

Why has the global economy remained resilient to recent shocks?

Global economic conditions have been remarkably resilient to three major adverse shocks in recent years. The shocks are the Russia-Ukraine conflict in 2022, a radical change in US trade policy in 2025, and the US-Israel war with Iran this year.

Crucially, in each case, other positive developments helped cushion or offset the negative effects of the three shocks: respectively, a robust post-pandemic rebound in economic activity in 2022, lower inflation and looser monetary policy in 2025, and an AI boom. 

Are price pressures easing in recent PMI data?

Recent PMI data showed an easing of price pressures. The global manufacturing input price index dropped by almost 7 percentage points over the two months to July, marking the largest back-to-back fall — outside of pandemic-affected periods — in over a decade. The global manufacturing output price index fell in each of the three months to July, though by a smaller margin. Similar patterns have been evident across most major economies. Whether these moderations will continue in August’s data is uncertain, given the rebound in crude oil prices since early July.

What oil price assumptions underpin the August update?

The base case from S&P Global Energy again incorporates end-2026 Dated Brent crude prices of US$87/barrel. Prices have been volatile despite the signing of the US-Iran memorandum of understanding (MOU) in mid-June, given ongoing uncertainty over the conflict and its effect on oil flows.

While the spot Brent price of about US$90/b as of Aug. 18 matches our assumption for August’s average Dated Brent price, it has risen by almost US$20/b (about 27%) compared with early July’s post-MOU low. 

Why has core inflation remained relatively stable despite higher input costs?

Core inflation rates have been relatively stable in most major economies despite higher input costs. While headline consumer price inflation rates rose from March due to higher energy prices, the pass-through of higher input costs to other prices has generally been modest to date. This supports our view that, where central bank policy rates are rising, the tightening will be quite limited in most cases.

Risks to monitor include delayed pass-through effects on core inflation and El Niño-related price pressures later in the year.

How have market expectations for Fed tightening changed?

Market expectations of Fed tightening this year have been pared back. This followed July’s weak US employment data and benign inflation figures. As of Aug. 18, futures markets were pricing in a 65% chance of a 25-basis-point rate rise by December.

Our base case remains for unchanged US policy rates this year, with gradual easing resuming from mid-2027 as inflation concerns diminish. Market expectations will remain highly sensitive to US data amid reduced communication from the Fed. 

Why is the US dollar forecast to depreciate further?

The US dollar has weakened as expectations of tighter policy have moderated, and our model-based forecast points to further depreciation. The key fundamental drivers of this view remain the elevated level of the dollar on a trade-weighted basis, an expected narrowing of interest rate differentials and the US’ persistent external imbalances.

The currencies of most of the US’ major trading partners are forecast to appreciate against the dollar over the coming years. The Mexican peso, which we assess as substantially overvalued, is a notable exception.

Where is monetary policy tightening still expected?

Monetary policy tightening is still expected in other major economies. We have brought forward our forecast for the next Bank of Japan rate increase to October, with September’s meeting also in play, consistent with heightened concerns about the effects of currency weakness on inflation. A series of rate rises in India is also forecast to begin in October.

We remain skeptical that the 50 basis points of rate hikes priced in for the European Central Bank by early 2027 will be delivered. Improving recent growth and inflation risks associated with extreme weather conditions have raised the likelihood of a rate rise at September’s meeting. 

What risks could materially change the economic and financial outlook?

Key risks that could materially change the economic and financial outlook include a chain reaction of conflict-related developments. Escalating US-Iran tensions drive up oil prices, second-round risks to inflation rise, monetary policy tightening becomes more pronounced and widespread, the fiscal cost of mitigation measures increases, long-term interest rates reach higher peaks than forecast, and risk assets (including equities) undergo a correction.

While our base case of moderating oil prices and lower US inflation and policy rates remains consistent with somewhat lower Treasury yields in 2027, this is from a higher starting point than previously, particularly compared with February’s pre-conflict forecast.