Diverging Global Economies
Mixed 2026 Economic Outlooks Reveal Diverging Growth Trends Across Europe And Asia
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Key Points
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The OECD expects U.K. inflation to average 3.1% in 2026—down from its previous 3.6% forecast but still the second-highest rate in the G7. Treasury minister Emma Reynolds said the economy had shown “strong resilience” despite conflicts in the Middle East and Europe.
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BMI said the Philippines would need at least 3.9% growth in the second half of 2026 to meet its own 3.3% full-year forecast, which is already below the government’s 3.5%-4.5% target. The firm said an intensified corruption investigation may have kept public capital spending subdued and could reduce its forecast by about 0.2 percentage points.
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Italy’s energy shock is tied in part to the near-total disruption of traffic through the Strait of Hormuz, which has fallen to about 13% of normal. Confindustria said European gas prices had climbed to €77 per megawatt-hour, compared with €33 in February and €14 in 2019, while August inflation reached 3.3% year over year.
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Romania’s contraction was uneven across sectors: construction contributed positively to first-half GDP growth as activity rose 12.3%, while wholesale and retail trade, vehicle repairs, transport and storage, and hotels and restaurants made a negative contribution of 0.9 percentage points.
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Statistics Netherlands said its revised Dutch second-quarter estimate incorporated newly available data from construction, business services, hospitality, the public sector, health and welfare, and financial services. It also revised fourth-quarter 2025 quarter-on-quarter growth from 0.4% to 0.5%, while leaving first-quarter 2026 growth at 0.3%.
Economic growth across Europe and Asia is sharply uneven in 2026, with some countries beating forecasts while others slip into contraction. The OECD raised its U.K. growth forecast to 1.1% for 2026 but warned expansion will slow to 1% next year as energy costs bite. Meanwhile, Italy upgraded its outlook to 0.8% growth after a strong first half, the Netherlands revised second-quarter GDP up to 0.6%, yet the Philippines and Romania both face economic headwinds that threaten their targets.
The divergence reflects how geopolitical shocks and energy disruptions hit economies differently. Italy's energy prices have soared due to the near-total blockade of the Strait of Hormuz. Romania's economy contracted 1.6% year over year in the first half. The Philippines risks missing its full-year growth target as corruption probes and weak government spending cool momentum.
U.K. Inflation Eases but Remains G7's Second-Highest
The OECD expects U.K. inflation to average 3.1% in 2026, down from its prior forecast of 3.6% but still the second-highest rate among G7 nations. Treasury minister Emma Reynolds said the economy had shown "strong resilience" despite conflicts in the Middle East and Europe. The lower inflation forecast reflects cooling price pressures, but the U.K. faces a growth slowdown next year as households and businesses adjust to higher energy bills.
Philippines Needs Stronger Second Half to Hit Target
The Philippines risks missing its government growth target of 3.5%-4.5% as BMI forecasts just 3.3% full-year growth. To reach even that lowered target, the nation needs at least 3.9% expansion in the second half of 2026. Third-quarter momentum has weakened due to elevated inflation, rising unemployment, and subdued public spending. BMI cited an intensified corruption investigation that may have kept government capital spending weak and could trim its forecast by 0.2 percentage points.
Energy Shock Drives Italy's Second-Half Slowdown
Italy's first-half strength masks a coming slowdown as energy costs surge. The near-total disruption of traffic through the Strait of Hormuz—now at just 13% of normal flow—has sent European gas prices to €77 per megawatt-hour, up from €33 in February and €14 in 2019, according to Confindustria. Italian inflation hit 3.3% year over year in August. Confindustria upgraded 2026 growth to 0.8% based on strong early results, but cautioned that higher energy, interest rates, and the fading boost from recovery plans will brake growth in the latter half.
Romania's Contraction Masks Uneven Sector Performance
Romania's economy contracted 1.6% year over year on a seasonally adjusted basis in the first half, but the decline was unevenly spread. Construction was a bright spot, with activity rising 12.3% and boosting overall GDP. However, wholesale and retail trade, vehicle repairs, transport, storage, hotels, and restaurants dragged growth down by 0.9 percentage points combined. The mixed results show how vulnerable service sectors remain to energy price shocks and consumer spending weakness.
Dutch Growth Revised Up on Exports and Consumer Spending
The Netherlands revised its second-quarter GDP growth upward to 0.6% from an initial 0.4%, Statistics Netherlands reported. Stronger exports and household consumption drove the upgrade. Statistics Netherlands also revised fourth-quarter 2025 growth up to 0.5% from 0.4%, while leaving first-quarter 2026 at 0.3%. The revision incorporated newly available data from construction, business services, hospitality, health and welfare, and financial services—sectors that showed more momentum than first reported.
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