Page 4 - FIPI - Policy & Economic Report May 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Executive Summary

The global economy in May 2026 continued to face mounting headwinds from elevated energy prices,
persistent inflationary pressures, supply chain disruptions, and increasing geopolitical uncertainty. While
fears of a prolonged disruption in the Strait of Hormuz eased during the month, the broader impact of the
Middle East conflict continued to weigh on economic sentiment, trade flows, and inflation expectations.
Major international institutions including the United Nations (UN), Asian Development Bank (ADB),
UNCTAD, and S&P Global revised their growth outlooks downward, reflecting concerns over slowing
demand, higher financing costs, and continued volatility in commodity markets.

Global growth forecasts for 2026 have been revised lower across most major economies. S&P Global now
projects world GDP growth at 2.2 per cent, while the United Nations expects growth of 2.5 per cent and
UNCTAD projects around 2.6 per cent. Inflationary pressures have re-emerged as a key concern, driven
primarily by elevated crude oil prices, higher shipping costs, and supply chain bottlenecks. Several
advanced economies continue to experience weak business activity, with the Eurozone recording its first
contraction in output in sixteen months. In contrast, emerging economies such as India and China have
remained comparatively resilient, supported by stronger domestic demand and industrial activity.

Global manufacturing and trade conditions remained uneven during the month. Manufacturing activity in
the United States was supported by inventory rebuilding and technology-led investments, while Europe
witnessed slowing industrial production and weakening business confidence. Global trade and logistics
networks continued to face challenges from higher freight costs and extended delivery times.
International organizations have increasingly highlighted geopolitical fragmentation, maritime trade
disruptions, and energy security concerns as key risks to global growth and trade.

Against this backdrop, India continued to demonstrate resilience and remained among the fastest-
growing major economies globally. Economic activity was supported by robust domestic demand, strong
services sector performance, healthy manufacturing growth, and improving export momentum. The HSBC
India Composite PMI rose to 61.2 in May 2026, indicating strong expansion in private sector activity and
reinforcing India's position as the strongest-performing major economy in the PMI survey. The Asian
Development Bank has projected India’s GDP growth at 6.9 per cent in FY2026–27 and 7.3 per cent in
FY2027–28, supported by domestic consumption, infrastructure investment, and continued economic
reforms.

Inflation in India remained relatively contained despite rising global commodity prices. Retail inflation
stood at 3.48 per cent in April 2026, remaining below the Reserve Bank of India’s medium-term target.
However, wholesale inflation accelerated sharply due to rising prices of mineral oils, crude petroleum,
natural gas, and other industrial inputs, reflecting the impact of elevated global energy prices. The
divergence between wholesale and consumer inflation suggests emerging cost pressures that could
gradually transmit through the economy if global energy markets remain volatile.

High-frequency indicators presented a largely positive picture of domestic economic activity. The Index of
Eight Core Industries registered growth of 0.5 per cent in April 2026, supported by strong performance in
steel, cement, and electricity. Manufacturing activity remained robust, while GST collections, digital
transactions, and infrastructure-related indicators continued to signal healthy domestic demand. At the
same time, domestic crude oil and natural gas production remained under pressure, highlighting India's
continued dependence on imported energy supplies.

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