Global Economic Outlook for 2026: Moderated Growth Amid Persistent Risks
Global GDP growth is forecast to moderate in 2026 due to trade weakness resulting from Trump-era tariffs. Although 2025 showed resilience, inflation and borrowing costs continue to keep conditions fragile. AI-driven growth remains uncertain, with Deutsche Bank polling indicating that 57% of institutional clients view an AI bubble risk as a major concern for 2026.
The United States is expected to lead G7 growth in 2026, while China is slowing, and Canada and the UK follow. Inflation is projected to cool across wealthy economies, and central banks may end or slow the rate-cut cycle. The departure of Federal Reserve Chair Powell in May raises questions about the stance of the new chair on future cuts amid political pressures.
The UK is forecasted by the IMF to have the highest inflation in the G7 this autumn, though Bank of England expectations suggest that the autumn budget under Rishi Sunak’s Chancellor, Jeremy Reeves, could help push headline inflation toward 2% by summer 2026.
Trade tensions persist after the imposition of tariffs during the Trump administration, with tariffs remaining elevated. This contributes to ongoing global trade uncertainty, potential trade fragmentation, and an acceleration of near-shoring trends.
Debt-servicing costs and fiscal vulnerabilities are rising across advanced economies. Market volatility linked to policy developments, including the One Big Beautiful Bill Act, signals ongoing bond-market risk in the UK and other regions.
Unemployment rose in 2025, with the UK at 5.1% and the US at 4.6%. Wage growth remains resilient; however, job-market pressures from AI adoption and demographic changes pose risks for 2026.
