Global Economy Faces Challenges in 2026
The global economy has faced a variety of challenges in 2025, including strong trade tensions, uneven but moderate growth, and increasing concerns about inflation and debt in many parts of the world. As the year comes to a close, many of these issues are expected to continue into 2026.
Global Growth Outlook
Global growth will slow moderately, from 3.2% in 2025 to 2.9% in 2026, according to the Organization for Economic Co-operation and Development (OECD) estimates. The organization says the global economy has proven resilient this year but remains fragile.
Trade Tensions
US President Donald Trump introduced a sweeping new tariff regime in April, aimed at reshaping global trade flows and reducing large US deficits. The move triggered market turmoil, business uncertainty, and supply chain adjustments. Tariff tensions between the US and China remain, and the trade conflict between the two largest economies is likely to continue.
US-China Trade Deal
The US-China trade deal "resembles a ceasefire rather than a permanent peace agreement that would end the US-China trade war." The battle for tech supremacy between the US and China is likely to last into next year, with increasing use of tariffs, sanctions, and other economic measures in key areas of technological rivalry.
China’s Economy
China’s economy is expected to remain robust next year, growing at about 5%, in line with the government’s recent targets. However, the country’s deep-rooted structural challenges remain, such as demographic aging, declining marginal productivity of capital, and overcapacity in many industries.
Trade Imbalance
The trade imbalance between China and the rest of the world is a significant concern. China’s growth model "continues to prioritize supply over demand, leading to chronic overcapacity and persistently weak consumer spending." Policymakers are committed to addressing the problem, but imbalance will remain a defining feature of the Chinese economy in 2026.
Inflation and Debt
Inflation remained high in many parts of the world, including the US and the euro zone, partly because of tariffs. A further rise in trade barriers or supply chain disruptions could accelerate price increases, leaving central banks with a dilemma over whether to raise interest rates to combat inflation or keep them low to support growth.
Germany’s Economy
Germany’s economy, the EU’s largest, is still struggling to emerge from a long downturn. However, the federal government is more optimistic and expects growth of 1.3% in 2026, driven by higher government spending on defense and infrastructure.
AI Boom
The boom in artificial intelligence (AI) is expected to continue next year, with major US technology companies investing hundreds of billions of dollars in AI infrastructure. However, the high valuations of US technology companies are making investors increasingly nervous, and some fear that it has become a bubble that could burst and cause a market crash.
Risks of AI Bubble Burst
If the AI stocks bubble bursts and spending falls abruptly, it could plunge the world’s largest economy into recession and dampen global growth. The AI revolution is structural, and technological change and adoption will continue in 2026, but the US economy and households would suffer a severe blow if the bubble bursts.
