The global economy entered a more uncertain phase this week as the International Monetary Fund downgraded its growth outlook, the US Federal Reserve remained divided over inflation and interest rates, and the Iran war continued to disrupt oil markets.
The IMF now expects the world economy to grow by a sluggish 3 per cent in 2026, down from 3.5 per cent last year and below its earlier forecast of 3.1 per cent. The downgrade reflects the energy shock triggered by the Iran war, although strong investment in artificial intelligence and other technologies has partially offset the economic fallout. Global growth is expected to rebound to 3.4 per cent next year. The US economy is projected to expand by 2.3 per cent in 2026, while the eurozone is forecast to grow by just 0.9 per cent as higher energy costs weigh on activity.
US Home Prices Hit Record High
The US housing market remained under pressure as existing-home sales fell 2.4 per cent in June to a seasonally adjusted annual rate of 4.09 million units. However, the median sales price climbed 1.8 per cent year-on-year to a record $440,600, extending the annual rise in home prices to 36 consecutive months.
Federal Reserve policymakers remain sharply divided over the path of inflation and interest rates. Minutes from the central bank's latest meeting showed disagreement over whether inflation would remain elevated or ease once the Iran war subsides.
Half of the 18 policymakers who submitted projections supported raising interest rates by the end of 2026, while the other half favoured keeping rates unchanged or cutting them. Global oil demand is expected to decline in 2026 for the first time since the Covid-19 pandemic, according to the International Energy Agency.
The agency expects demand to fall by one million barrels per day as higher prices and physical supply disruptions hit economies worldwide. Asia has borne much of the decline, with the region heavily dependent on oil transported through the Strait of Hormuz, where tanker traffic has been severely disrupted by the war.
US Jobless Claims Dip, But Hiring Slows
Applications for unemployment benefits fell by 2,000 to 215,000 in the week ending July 4, below economists' expectations of 220,000. Layoffs remain historically low, suggesting continued resilience in the US labour market. However, employers added just 57,000 jobs in June, less than half the previous month's total, signalling increasing caution among businesses.
Wall Street Holds Steady Amid Iran War Uncertainty
US stocks and oil prices headed towards a relatively subdued end to the week as investors continued to assess the impact of the Iran war on global crude supplies. The S&P 500 was on track for its fourth weekly gain in five weeks, while the Dow Jones Industrial Average edged higher and the Nasdaq Composite remained nearly unchanged. Oil prices were relatively steady despite continued uncertainty surrounding disruptions to Iranian crude supplies. |
