Global Economic Outlook for 2026: Slow Growth Amid Trade Tensions and Inflation Normalization
Global GDP growth is forecast to slow in 2026, largely due to the ongoing impact of trade tensions stemming from Donald Trump’s tariff policies. Despite potential productivity gains driven by artificial intelligence, these advances are not guaranteed to fully offset the economic drag.
The United States is expected to lead among G7 nations in economic growth, with Canada and the UK also performing well, while China’s growth is anticipated to slow down. Inflation rates are projected to ease across wealthy countries as inflation normalizes, and central banks may conclude their cycle of rate cuts. In the UK, inflation could approach near 2% by the summer, influenced by fiscal policy.
Monetary policy is expected to stabilize with central bank rates around 2%. The European Central Bank is close to its 2% target, and with Jerome Powell's term ending in May, potential policy changes may occur depending on his successor and prevailing political pressures.
Trade tensions remain significant in the aftermath of the Trump tariff shock, with the US maintaining higher tariff levels and elevated uncertainty in trade policies. This situation is likely to accelerate trade fragmentation and encourage faster near-shoring of supply chains.
Fiscal vulnerability is a concern as borrowing costs increase. Bond markets may experience volatility amid policy shocks, such as US fiscal actions and UK budget anxieties, compounded by high debt levels.
Unemployment rose in 2025 to 4.6% in the US and 5.1% in the UK, with risks of further increases in 2026. Wage growth has remained resilient but may complicate inflation dynamics moving forward.
