Global economic conditions are proving to be more resilient in 2025 than many feared, according to Oxford Economics. Despite the uncertainty following President Donald Trump’s presidential victory, global GDP growth has remained steady at around 2.8%.
Read also: Global trade: the path to economic prosperity
Three global themes shape the outlook for 2026
As we look to 2026, the global economic outlook is shaped by many unique forces that make the timing and magnitude of their impacts difficult to read. The analysis reveals the three global themes that will define 2026 and determines what they mean for the economic outlook.
The first topic: Shifting from customs tariff levels to their indirect effects
Much of the uncertainty in 2025 centers on the size of US tariff increases. Today, the biggest question is no longer how high US tariffs may rise, but rather what are the indirect effects of continuing high US tariffs. For the United States, we do not expect tariffs to significantly weaken its domestic activity. Strong household incomes and continued fiscal easing should allow US exceptionalism to continue in 2026. However, we expect tariffs to have a more sustained impact on US imports than consensus, limiting the spread of US domestic power to the rest of the world.
Despite facing very high US tariffs, overall Chinese exports have continued to grow at a reasonably healthy pace. We expect this to continue until 2026 as the authorities continue to promote manufacturing-led growth. This is likely to cause Chinese export prices to fall further as companies seek to export additional production. Recent deflationary episodes may have negative indirect effects on advanced economies compared to previous periods of low Chinese prices. The shift in China’s export basket since the last deflationary episode in the mid-2000s toward higher value-added products has put Chinese companies in more direct competition with producers in Northeast Asia and Europe. Therefore, lower Chinese prices will only increase competitive pressures on manufacturers in both regions.
The second topic: Artificial intelligence as a shock absorber or shock amplifier?
In 2025, rapid growth in AI-related capital spending in the United States offset weaker growth elsewhere in the economy, and gave a big boost to computer and semiconductor producers in Asia. But the road ahead looks more volatile. However, risks lie both ways. The AI boom is arguably entering a more vulnerable phase. Financing is shifting from cash to debt. Concerns about the decline of AI are a clear risk in the surveys we have conducted with our clients. In our downside scenario, which is modeled on the dot-com bubble, a sharp slowdown in AI investment and falling stock prices slow US GDP growth to less than 1% next year.
Topic 3: It’s all about the financial motivation
While monetary policy tends to dominate the economic debate, its role in shaping growth surprises in 2026 is likely to be limited. Interest rate cuts are expected to proceed gradually towards neutral levels, and the exact path is unlikely to have any meaningful impact on economies’ growth trajectories in 2026. Instead, fiscal policy surprises will be more important.
Despite growing concerns about fiscal sustainability in the US, UK and parts of Europe, we suspect that any fiscal surprises next year will inevitably be in the form of additional tightening. Although debt ratios in some advanced economies will rise, this rise will be gradual. Against this background, as long as governments have a credible medium-term plan, markets are unlikely to punish them harshly for any signs of a slight fiscal slide. Our baseline forecast assumes that global fiscal momentum will be slightly positive next year, driven mainly by China. We believe that the risks are tilted towards a more supportive fiscal policy, especially in the United States and China.
Global outlook in 2026: stable on the surface, mixed below
Together, these themes point to a forecast where global growth remains stable but unobserved. We expect global GDP to grow by 2.7% in 2026. But under this fixed headline, important differences are expected to widen: The United States remains ahead, even amid uncertainty about artificial intelligence. China has succeeded in achieving stability but has shifted competitive pressures towards advanced economies. The eurozone and Japan lag behind, where structural challenges are becoming more apparent. Fiscal policy, not interest rates, will be the main swing factor.
The stability indicated by the higher numbers hides a more complex reality beneath the surface. Understanding these fundamental forces, and the risks and opportunities they create, will be essential to managing the global economy in 2026.
Source: Market intelligence platform IndexBox
