India’s Surging GDP Puts It on Fast Track to Overtake Japan as World’s Fourth-Largest Economy

Economic

Summary:

India’s Q1 FY2025-26 GDP growth hit 7.8%, far exceeding forecasts, reinforcing its status as the fastest-growing major economy and setting the stage to surpass Japan as the world’s fourth-largest economy by year-end....

India’s Economy Defies Global Headwinds with Robust Growth

India has once again demonstrated its economic resilience. On August 29, the Ministry of Statistics and Programme Implementation (MOSPI) announced that India’s GDP grew 7.8% in the first quarter of the 2025–2026 fiscal year (April–June 2025), compared to the same period last year. This figure exceeded the 6.7% forecast by economists polled by Reuters, and was also higher than the 7.4% growth recorded in the previous quarter.

The stronger-than-expected expansion reaffirms India’s reputation as the fastest-growing major economy in the world, even as it faces external challenges.

U.S. Tariffs Pose Risks but India Stays the Course

One of the most notable headwinds is the 50% tariff imposed by the U.S. on selected Indian goods. Analysts warned that such high tariffs could reduce India’s GDP growth by 20 to 90 basis points, depending on the extent of the trade impact and the sectors affected.

However, the robust Q1 data suggests that domestic demand, investment, and service exports may be compensating for trade-related disruptions. The resilience in private consumption and public infrastructure investment appears to be cushioning the effect of foreign trade tensions.

IMF Outlook: India to Surpass Japan in 2025

According to the International Monetary Fund (IMF), India is projected to overtake Japan by the end of the current fiscal year, becoming the fourth-largest economy in the world (in nominal GDP terms). Japan’s economy, despite being mature and technologically advanced, has recently struggled with deflationary pressure, aging demographics, and a weak yen, which have weighed on its nominal GDP performance in USD terms.

India, by contrast, benefits from a young labor force, booming tech and manufacturing sectors, and ongoing government-led infrastructure development. These structural advantages, alongside consistent GDP growth in the 7–8% range, place it on a clear upward trajectory.

A Milestone in India's Economic Rise

India’s better-than-expected GDP growth marks more than just a quarterly beat it signals momentum toward a long-anticipated economic milestone. Should current trends persist, India will not only retain its title as the world’s fastest-growing major economy but also cement its place among the top four global economic powers, overtaking Japan and trailing only the U.S., China, and Germany.

The real test, however, will lie in sustaining this momentum amid geopolitical trade friction, currency volatility, and external demand fluctuations. Yet, for now, India’s growth engine remains firmly in motion.

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Commodity

China's Gas Strategy Shifts to Existing Pipeline Over New Investment Uncertainty

China is looking to increase its annual gas imports from Russia via the existing Power of Siberia 1 pipeline, amid stalled negotiations over the more ambitious Power of Siberia 2 project. Currently, Russia supplies 38 billion cubic meters (bcm) of gas annually through Power of Siberia 1, which began operation in 2019. Talks are now underway between Gazprom and China National Petroleum Corporation (CNPC) to raise that volume by an additional 6 bcm, starting from 2031.

According to industry sources cited by Reuters, this increase, priced at approximately $250 per 1,000 cubic meters, would generate an extra $1.5 billion in annual revenue for Russia’s energy giant Gazprom.

Pipeline Expansion as Strategic Pivot

While the Power of Siberia 2 pipeline originally planned to carry 50 bcm/year from West Siberia to northwest China remains central to Russia’s long-term export ambitions, a final agreement on pricing and financing has eluded Moscow and Beijing for over a decade. The $13.6 billion project is unlikely to gain new momentum during President Vladimir Putin’s upcoming visit to China, where energy will nevertheless dominate discussions with President Xi Jinping.

In the meantime, PipeChina, which controls China’s domestic energy infrastructure, has begun studying upgrades to its internal pipeline network to absorb more gas from the existing Power of Siberia 1. Construction could start as early as late 2026.

Russia Seeks to Replace European Markets

For over five decades, Russia exported gas mainly to Europe via pipelines from West Siberia, fulfilling up to 40% of EU gas needs and bringing in $90 billion annually. That trade collapsed after Russia’s 2022 invasion of Ukraine, when most EU countries halted imports, forcing Moscow to pivot east.

Power of Siberia 1, which sources gas from East Siberia, is not connected to West Siberia, the heart of Russia’s legacy production and export infrastructure. The Power of Siberia 2 project was supposed to bridge this gap and establish a new export corridor to Asia. However, the growing availability of renewable energy and domestic gas production in China has reduced its urgency to finalize the new pipeline.

Strategic Calculations and Geopolitical Leverage

Despite the lack of progress on Power of Siberia 2, China and Russia are not abandoning their long-term pipeline ambitions. Energy analyst Tatiana Mitrova from Columbia University notes that while China’s energy demand is somewhat constrained, overland gas supplies from Russia remain attractive due to lower geopolitical risk compared to LNG sourced by sea.

Sergey Sanakoev, director of the Asia-Pacific Research Center in Moscow, added that Gazprom is exploring the technical feasibility of increasing Power of Siberia 1’s capacity to 45 bcm/year. Gazprom itself has confirmed the pipeline could exceed its initial design limits, indicating confidence in infrastructure resilience.

In parallel, a new Sakhalin–China gas pipeline is expected to go online in 2027, supplying up to 10 bcm/year, further diversifying Russia’s export routes and deepening its energy ties with China.

By doubling down on existing infrastructure like Power of Siberia 1 and the upcoming Sakhalin route, Russia is adapting to geopolitical constraints and shifting demand dynamics. China, for its part, is pursuing energy security and flexibility, prioritizing scalable and secure supply routes over committing to new megaprojects. The incremental increase in gas flows may not match the original Power of Siberia 2 vision, but it represents a pragmatic realignment of Sino-Russian energy cooperation.

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China’s AI Chip Ambitions Accelerate

According to the Financial Times, China is gearing up for a massive production surge in artificial intelligence (AI) semiconductors, with major players such as Huawei and Semiconductor Manufacturing International Corporation (SMIC) at the forefront. This expansion is expected to more than triple the country’s output of AI chips by 2026.

The strategic move comes as U.S.-China tech tensions escalate, pushing Chinese firms to build domestic capabilities to match or replace Western suppliers. AI chips essential for powering large language models, facial recognition systems, and autonomous technologies have become a central battleground in this effort.

Huawei’s Factory Push and Strategic Role

Huawei, which currently leads China’s AI hardware innovation, is supporting the launch of three new AI-focused semiconductor facilities. The first is set to begin operations by the end of this year, with the other two following in 2026. If all three reach full capacity, their combined output is expected to surpass SMIC’s current AI chip production, a significant benchmark given SMIC is China’s largest semiconductor foundry.

Although Huawei claims it won’t directly own or operate the chip fabs, it remains a key driver in shaping their design and operational focus. Its latest AI chips reportedly meet performance criteria laid out by DeepSeek, a fast-growing AI startup in China specializing in large-scale models, showcasing the alignment between hardware development and software deployment in China’s AI ecosystem.

SMIC to Double Capacity for 7nm Chips

In parallel, SMIC plans to double its production capacity next year for 7-nanometer chips, the most advanced nodes currently mass-produced in China. Huawei is SMIC’s largest customer in this segment, underscoring a growing alliance between China’s top fabless and foundry firms.

Industry executives suggest that once these new facilities come online, domestic production constraints will no longer be a bottleneck, paving the way for rapid AI model deployment and system integration.

Reducing Dependency on Nvidia and AMD

China’s production ramp-up also comes amid growing uncertainty around Nvidia’s H20 AI chip, a U.S.-sanctioned variant intended for the Chinese market. Local firms are now working on homegrown alternatives to compete with the H20 and similar models from AMD, aiming to eliminate a strategic vulnerability in the supply chain.

By boosting domestic chip supply, China seeks to provide greater stability for its AI developers, particularly as U.S. export restrictions continue to tighten. The goal is not merely to fill the gap left by foreign suppliers but to eventually surpass them in efficiency and specialization, particularly for AI applications tailored to Chinese platforms and needs.

China’s aggressive investment in AI chip manufacturing marks a critical phase in its long-term strategy to achieve technological sovereignty. If successful, this expansion could transform China from a major chip importer into a globally competitive chip producer, especially in the AI domain. The impact will be felt not just in the domestic tech scene but also across global supply chains and the broader AI arms race.

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Energy Diplomacy Amid Political Tensions

In the complex geopolitics of the Middle East, political agreements are notoriously fragile and slow-moving. However, recent developments in natural gas trade are reshaping the region’s dynamics. Israel’s gas exports to Egypt and Jordan are playing a pivotal role not only in supporting regional energy security but also in advancing Israel’s long-term diplomatic normalization agenda.

Gas deals have helped preserve fragile peace agreements, especially with Egypt and Jordan, while reinforcing Israel's image as a reliable energy partner. Amid the Gaza conflict and the humanitarian crisis facing Palestinians, these energy ties have notably endured, suggesting the growing weight of economic interests over purely political considerations.

The Leviathan Field and the Egypt Deal

NewMed Energy, which holds a 45.34% stake in the Leviathan gas field the largest in the Eastern Mediterranean recently signed a $35 billion deal to supply Egypt with 130 billion cubic meters of gas over 15 years. This gas will be delivered via pipelines, offering substantial cost savings compared to Egypt’s liquefied natural gas (LNG) imports, which currently cost $12–13/mn Btu versus Israel’s lower pipeline rate (estimated at ~$7.50/mn Btu).

This deal also relieves pressure on Egypt’s domestic gas supply, which has been strained due to falling output from the Zohr gas field (which provides 35–40% of Egypt’s production). As a result, Egypt was forced to cut industrial activity in early 2025 and turn to foreign suppliers like Shell and TotalEnergies for LNG.

Regional Energy Interdependence

Israel’s gas exports are emerging as a vital link in a regional energy web. Jordan, for instance, has imported Israeli gas since 2020 and continues to depend on it amid fluctuating regional supplies. Egypt, facing a projected 22.5% drop in domestic gas production by 2028 and a 39% surge in electricity demand, increasingly leans on Israeli supplies to close the gap.

This growing energy interdependence not only positions Israel as a regional energy anchor but also creates economic incentives for sustained cooperation, even among adversarial nations.

Gulf Interest and Investment Potential

Energy ambitions are further supported by the involvement of Gulf sovereign wealth funds and national oil companies. The Shell-Kufpec joint venture in Egypt’s Mina West field and the interest from Abu Dhabi National Oil Company (ADNOC) in acquiring NewMed Energy signal Gulf interest in deeper integration with Israel’s energy infrastructure.

Although the ADNOC-BP–NewMed deal stalled in 2024, the possibility of privatizing NewMed could reaccelerate efforts to tie Israeli gas assets more closely with Gulf economies and logistics networks, transforming Israel into a strategic node in a broader energy corridor.

Toward Normalization Through Energy

The strategic logic is clear: if Israel can ensure affordable and stable energy supplies to key regional players like Egypt and Jordan, it strengthens its case as a reliable economic partner. This could open doors to broader infrastructure cooperation and diplomatic normalization, including renewed interest from Gulf states.

For Israel, this energy-based diplomacy is not only about export revenue it’s a path toward regional acceptance and long-term integration into a Middle East previously resistant to open cooperation. The more Israel proves indispensable to regional energy needs, the more leverage it gains to reshape alliances and recast its role in the region.

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Europe Takes a Bold Step Toward Using Russian Assets for Ukraine's Recovery

In a major escalation of economic pressure on Russia, the European Commission is formulating a plan to transfer €200 billion worth of frozen Russian assets to Ukraine. These assets, held in European financial institutions since the outbreak of the war in 2022, are now being eyed as a crucial funding source to rebuild Ukraine’s war-torn infrastructure.

A member of the working group confirmed that this proposal would redirect frozen Russian funds primarily central bank reserves toward Ukraine's reconstruction, with the plan being developed to comply with international law and to minimize legal and financial risks for EU institutions.

Legal and Political Hurdles Ahead

Although the proposal is gaining traction within the European Commission, it still requires unanimous approval from EU member states, and countries like Hungary have already expressed skepticism about the legality and feasibility of the move.

The Commission is currently drafting a comprehensive legal and technical framework to facilitate the transfer while attempting to avoid setting a precedent that could weaken investor confidence in European financial systems.

Strategic Messaging and Risks of Escalation

Supporters of the plan argue that if Russia refuses to pay war reparations, this mechanism may be the only practical path to accountability. However, Moscow has strongly condemned the initiative, branding it “theft of sovereign assets.” The Kremlin has threatened retaliatory measures, including seizing Western-owned assets still present on Russian soil though this option has lost weight as many Western firms have already exited Russia.

This plan, if implemented, would mark an unprecedented use of frozen sovereign assets in modern geopolitics. While previous instances have seen targeted sanctions or freezes, an outright confiscation and redirection of state-held funds would raise serious legal and ethical questions on the international stage.

For Ukraine, however, the potential €200 billion infusion could provide a lifeline, helping to restore infrastructure, housing, healthcare, and industry especially as direct international aid flows become harder to sustain over time.

The EU’s move to transfer frozen Russian funds to Ukraine could shift the balance in the post-war reconstruction effort but also risks intensifying global disputes over the sanctity of state assets. If successful, it might inspire future precedents for handling aggressor states, but the risk of economic retaliation and legal backlash remains high.

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India Prioritizes Cheap Russian Oil Over US Pressure

In a bold response to escalating trade tensions, India is set to increase its crude oil imports from Russia by 150,000–300,000 barrels per day in September compared to August. This decision comes just days after the United States, under President Donald Trump, imposed a second round of tariffs, raising duties on Indian imports to 50%, as a way to pressure New Delhi into distancing itself from Moscow.

Despite growing pressure, Indian officials remain firm. Foreign Minister Subrahmanyam Jaishankar stated that India and Russia aim to boost bilateral trade to USD 100 billion in the next five years. He emphasized that Russia remains a strategic partner, especially in ensuring India’s energy security and economic development. This firm stance shows India’s unwillingness to let geopolitical pressure override its national interests.

A Mutually Beneficial Relationship Amid Global Shifts

Following disruptions in Russia’s refining capacity with at least 10 refineries shut down, reducing domestic refining output by 17% Moscow is being pushed to export more crude oil. India, which already accounts for over one-third of Russia’s oil exports, has become a key outlet, with major refiners like Reliance Industries and Nayara Energy (partially Russian-owned) continuing to ramp up purchases.

Most of this oil is delivered via Russian-owned tankers, and the deep discounts offered have helped India reduce its import bill while keeping domestic energy prices under control crucial for a rapidly growing economy.

Short-Term Impact: US Sanctions May Backfire

Although Washington’s goal is to isolate Russia economically, the sanctions might be strengthening alternative energy alliances, especially among BRICS countries. Rather than isolating Russia, these efforts are pushing nations like India and China closer to Moscow, allowing for new trade patterns that bypass Western financial systems and political influence.

India’s move signals a broader trend among emerging economies to pursue strategic autonomy in the face of global fragmentation. While continuing to maintain relations with the US and the West, New Delhi is clearly asserting its independence in matters of energy and trade.

This development could serve as a model for other developing nations navigating similar geopolitical pressure choosing stable growth and energy affordability over alignment with any single global power bloc.

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Mexico Moves to Curb Chinese Imports in Strategic Trade Realignment

Mexico’s upcoming 2026 budget proposal is expected to include a significant policy shift: new import tariffs on goods originating from China, notably in sectors such as automobiles, textiles, and plastics. Citing a Bloomberg report on August 28, the move reflects Mexico’s effort to rebalance its trade relationship with China, shield domestic industries from underpriced competition, and position itself more favorably in the evolving geopolitical trade dynamic shaped by U.S. pressure.

This tariff proposal aligns with longstanding demands from U.S. President Donald Trump, who has pushed Mexico to mirror America’s aggressive trade posture toward China. It also comes ahead of next year’s planned review of the United States–Mexico–Canada Agreement (USMCA), underscoring how the issue of supply chain sovereignty and trade parity has become a precondition for deeper economic integration.

Domestic Industry Protection and Trade Balancing Objectives

Officials in Mexico’s finance ministry suggest that the primary objective is to protect national industries and reduce reliance on cheap Asian inputs, especially from China. These proposed tariffs are not limited to China alone; early indications suggest they may extend to other Asian economies, hinting at a broader strategy of reshoring production and encouraging regional manufacturing ecosystems.

The tariff expansion would mark a sharp pivot from Mexico’s historically open trade orientation and signal a causal response to competitive erosion in its domestic manufacturing base. The targeted sectors automotive, textiles, and plastics have faced increasing pressure from low-cost Chinese imports, affecting local employment and industrial capacity.

North American Supply Chain Realignment Underway

Beyond domestic politics, this policy move has clear implications for the North American supply chain framework. As Mexico integrates further into U.S.-led initiatives to decouple from Chinese manufacturing, the tariffs could encourage nearshoring of key production lines, enhance compliance with USMCA origin rules, and support broader U.S. goals of reducing Chinese participation in sensitive sectors such as electric vehicles and advanced manufacturing.

However, such a transition also risks supply disruption and input inflation, especially for Mexican businesses that rely on Chinese intermediate goods. The downstream effects may include price increases in consumer goods, delays in assembly lines, and elevated production costs particularly for small and mid-sized enterprises.

Political Timing and Legislative Outlook

The draft budget, spearheaded by President Claudia Sheinbaum’s administration, is set to be submitted to Mexico’s Congress on September 8. As the policy represents a blend of trade and political strategy, its success will depend on domestic legislative support and bilateral coordination with the U.S. administration, especially amid ongoing discussions about regional security and anti-narcotics cooperation.

If enacted, these tariffs will be a litmus test for Mexico’s willingness to recalibrate its international trade stance and align more explicitly with U.S. strategic interests. It also represents a broader trend of economic nationalism, where middle-power economies like Mexico must navigate the fine line between open-market pragmatism and protectionist realignment under geopolitical pressure.

Mexico’s proposed tariff hikes on Chinese imports mark a significant pivot in its trade and industrial policy, driven by a need to protect domestic producers, align with U.S. trade priorities, and regain control over supply chain dynamics. While the move may fortify its manufacturing base and strengthen ties with Washington, it also introduces new risks ranging from supply chain bottlenecks to retaliatory actions by affected Asian trading partners. As the 2026 budget moves through Congress, the world will be watching how Mexico manages this balancing act in an increasingly fragmented global trade landscape.

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