Resilience in 2025 gives way to a fragile outlook
The global economy proved more resilient in 2025 than many economists had feared, weathering trade tensions, geopolitical conflicts, and persistent inflation pressures. As 2026 begins, optimism is tempered by slower growth, higher borrowing costs, and ongoing uncertainty across financial markets.
While inflation has eased in many advanced economies and central banks have begun lowering interest rates, the ultra-low borrowing environment of the pre-pandemic era is firmly in the past. Growth is expected to moderate, leaving policymakers with limited room for error.
Artificial intelligence as a growth engine
Artificial intelligence is expected to play a central role in the economic narrative of 2026. Heavy investment in data centers, automation, and digital infrastructure could support productivity gains, but concerns remain over excessive valuations and the risk of a technology-driven market correction.
Investor sentiment surveys indicate that a potential technology bubble is viewed as one of the largest risks for the year ahead. Despite the promise of AI-led efficiency gains, global GDP growth is forecast to slow, weighed down by weaker consumer demand and disruptions to international trade.
Inflation cools, but vulnerabilities persist
Households across advanced economies are expected to benefit from slower inflation in 2026, easing years of cost-of-living pressure. Central banks are approaching the end of their interest-rate cutting cycles as price growth normalizes near long-term targets.
However, policymakers remain cautious. New economic shocks, political interference, or renewed supply constraints could reignite inflation, limiting the scope for further monetary easing and keeping financial conditions tight.
Trade tensions reshape global commerce
Although the immediate shock of escalating trade disputes has faded, global trade policy remains uncertain. Tariff levels are higher than in previous years, and companies continue to adjust by diversifying supply chains and moving production closer to end markets.
Over time, trade fragmentation is expected to reduce efficiency, increase costs, and weigh on global growth, reinforcing a more regionalized economic structure.
Fiscal pressure and bond market scrutiny
Rising government borrowing costs placed several advanced economies under intense market scrutiny in 2025. High debt levels and weak growth outlooks have left governments vulnerable to sudden shifts in investor confidence.
In 2026, fiscal discipline will remain under close watch as governments balance the need to stimulate growth, fund defense commitments, and avoid destabilizing bond markets.
Labor markets under strain
Labor markets softened noticeably in 2025, with unemployment rising in several major economies. Slower hiring, demographic shifts, and growing business uncertainty are expected to continue pressuring employment into 2026.
While widespread job displacement from artificial intelligence has yet to materialize, investment in automation is accelerating. Wage growth is expected to remain resilient, offering some protection for households but posing ongoing challenges for inflation-sensitive central banks.