Global Economic Outlook for 2026: Growth, Inflation, and Risks
Global GDP growth is expected to slow in 2026, largely due to higher international trade barriers stemming from US tariff policies. The US is forecast to lead growth among G7 countries, while China’s growth is expected to decelerate.
Inflation is predicted to cool in 2026 as part of a broader normalization within rich countries. Central banks are anticipated to conclude their rate-cut cycles. The US Federal Reserve’s next policy move may depend on the appointment of Chair Powell’s successor in May. In the UK, inflation is expected to lag as a disinflation outlier; the International Monetary Fund had projected the UK to have the highest inflation in the G7. The Bank of England expects the budget under Chancellor Reeves to push headline inflation toward 2% by summer. Meanwhile, the European Central Bank is unlikely to raise rates in 2026 as inflation remains near target levels.
AI-driven growth remains a key uncertainty for the global economy, with 57% of Deutsche Bank clients identifying a potential AI-related stock market bubble as one of the top three risks for the year.
Trade tensions remain elevated despite some easing following the initial tariff shocks. Sustained higher US tariffs and policy uncertainty could lead to trade fragmentation, accelerated near-shoring, and diversification of supply chains.
Public finances and bond markets show vulnerability due to higher debt levels and borrowing costs. Signs of bond-market volatility have emerged in major economies, with UK political events, such as the May local elections, adding further fiscal pressures.
Unemployment rates rose in 2025, reaching about 4.6% in the US and 5.1% in the UK. A further increase in 2026 is considered a significant risk, although wage growth is expected to remain resilient and continue supporting workers' finances.
