Global Macro Research
Monetary PolicyEM outlook Q3 2026: storm eases clouds remain
The oil shock is just one of the winds buffeting emerging markets (EMs). From energy to technology to food, they have had to deal with a mix of supply and demand shocks. Further diplomatic progress in the Middle East will help take pressure off vulnerable EMs, even though El Niño risks are rising.
Authors
Michael Langham
Emerging Markets Economist
Tettey Addy
Emerging Markets Economic Analyst
Contributors
Bob Gilhooly
Duur: 1 Min
Date: 10 jul 2026
Key Takeaways
- The oil shock has been a stress test for EMs. Oil-importing Asia has been on the front line, with FX pressure, inflation surprises and intervention needs rising faster than in other economies.
- The Middle East conflict remains a source of uncertainty, but some diplomatic progress has been made, suggesting the oil shock may abate.
- The surge in capital expenditure (capex) related to artificial intelligence (AI) should help counter the drag on consumption from this period of high oil prices, particularly for those deeply embedded in global supply chains.
- That said, the disappearance of petrodollars — as Gulf nations rebuild and re-arm — could keep markets sensitive to balance of payments and fiscal dynamics.
- Indeed, fiscal space will remain an important dividing line, influencing the ability of EMs to cushion any new energy or food price shocks on households. Although now looking less probable, a
prolonged closure of the strait would likely result in further steps to roll back subsidies, even in fiscally strong tech exporters. - Weather is the next wild card: a strong El Niño risks another supply shock, pushing inflationary pressure beyond oil and AI and into food.
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