The global economy proved to be more resilient in 2025 than had been feared, despite severe headwinds that ranged from Donald Trump’s trade war to geopolitical tensions and the conflicts in Ukraine and the Middle East.
Entering the new year, the hope is that the worst of the recent inflation shock has passed, as the world’s most powerful central banks lower interest rates. However, the pre-Covid age of rock-bottom borrowing costs is a distant memory, global growth is slowing and conditions remain fragile.
Here are five key charts underpinning the economic outlook for 2026.
AI-driven economic growth?
After years of hype, the catalytic potential of artificial intelligence will feature heavily for the global economy in 2026. Could companies ploughing vast sums into datacentres, IT and automation kickstart productivity growth? Or could enthusiasm wane amid investor fears of a bubble in the US stock market fuelled by stratospheric valuations for AI companies?
Polling by Deutsche Bank of its institutional clients revealed that a tech bubble bursting topped the ranking of the 15 largest risks for the year ahead, with 57% of respondents placing it among their three biggest risks.
Jim Reid, the bank’s global head of macro research, said: “We’ve never seen a single risk score so far ahead of the rest entering a new year, making it very clearly the dominant concern for 2026.”
Despite a potential AI tailwind, global GDP growth is forecast to moderate in 2026 amid the hit to international trade from Trump’s tariff policies. Consumer demand – squeezed by years of elevated inflation and borrowing costs – remains under pressure.
Growth in China is expected to slow as Beijing faces rising challenges in stoking activity. The US is forecast to lead the G7 growth league table, followed by Canada and Britain.
Cooling inflation but risks remain
Households have faced a severe cost-of-living squeeze from inflation sticking at elevated levels, but the hopes are for a marked slowdown in the rate of consumer price growth in 2026.
Economists are predicting a “normalisation” of inflation across rich countries, paving the way for central banks to end their cycle of interest rate cuts – in effect lifting a restriction on the economy from higher borrowing costs.
In the US, the term of the Federal Reserve chair, Jerome Powell, ends in May. The focus will be on whether Powell’s replacement will oversee deeper rate cuts amid political pressure from Trump. Fears over interference from Washington are also expected to weigh on financial markets.
Britain risks standing out as a disinflation laggard. In the autumn, the International Monetary Fund forecast the UK would suffer the highest inflation in the G7. However, that was before Rachel Reeves’s budget, which the Bank of England expects could sink the headline rate close to its 2% target by the summer.
For the European Central Bank, inflation across the single-currency bloc already hovering near its 2% target is expected to deter it from taking action in 2026.
Still, economists remain wary that inflation across rich countries could be in danger of rekindling – limiting the scope for rates to be cut much further.
Jack Meaning, the UK chief economist at Barclays, said: “We’ve been through a period of repeated shocks, and we’re coming into a period where there’s always a chance of new shocks hitting the system.
“But, failing that, the conversation is more plus or minus a small adjustment to target, rather than these big swings we’ve had recently. So it’s more familiar to life for people who remember things before the big inflation. And that’s a bit more normal.”
Navigating elevated trade tensions
After the initial shock of Trump’s “liberation day” announcement last April, international trade tensions have subsided.
But, while the worst-case scenarios have not immediately materialised, US tariff rates are significantly higher than before Trump’s return to the White House, and trade policy uncertainty remains elevated.
Economists reckon simmering geopolitical tensions more broadly will probably lead to further trade fragmentation, forcing companies to accelerate their supply chain diversification and near-shoring efforts.
“Geopolitically, the world remains a boiling pot of uncertainty,” said Carsten Brzeski, the global head of macro at ING bank. “We’re still to get the US supreme court’s tariff rulings, and the trade tensions between the US and China, and increasingly between Europe and Beijing, appear to be baked into a new normal.”
Longer term, the tariff hit will probably reduce trade volumes, raise supply-chain costs and dampen economic growth worldwide.
Keeping bond vigilantes in check
Governments across advanced economies came under pressure from rising borrowing costs in 2025, particularly for countries with already high levels of debt and weak growth outlooks.
Bond vigilantes had the US, Britain and France in their crosshairs in particular. Donald Trump’s One Big Beautiful Bill Act rattled markets, while speculation over the UK’s budget fuelled a sell-off in its bond markets, and France’s were plunged into crisis as Emmanuel Macron’s government battled to pass a budget.
Forecasters warn that fiscal vulnerabilities remain in the year ahead, despite hopes that a steadier inflation outlook and thawing trade tensions could provide a more supportive backdrop. Highly indebted governments facing pressure to boost growth and raise defence spending will come under the microscope.
In the UK, there are hopes that Reeves’s decision to leave more headroom against her self-imposed fiscal rule at the autumn budget could ease the risk of a bond market backlash. But attention is shifting to a tough round of May local elections and whether Keir Starmer could survive a leadership challenge.
The rise of unemployment
Against a volatile economic backdrop, hiring demand tumbled across rich countries in 2025. Unemployment rates in the US and the UK rose sharply, and economists warn that a further rise in joblessness stands as a big risk for 2026.
The impact of tax policies, business uncertainty and AI adoption are expected to weigh on employment. So far there are limited signs of widespread AI-fuelled job displacement. But investment is accelerating, and youth unemployment rates in Britain in particular are causing political alarm. Meanwhile, participation in the workforce remains under pressure owing to demographic shifts such as population ageing and rising ill-health.
In the UK, the unemployment rate has already reached 5.1%, the highest level outside the Covid pandemic in almost a decade, and could rise further in 2026. In the US, the rate has hit 4.6%, a four-year high, amid concerns over the strength of the world’s largest economy.
Despite the pressures in the jobs market on both sides of the Atlantic, wage growth is expected to remain resilient, helping workers to rebuild a financial buffer but spooking central bankers worried about inflation risks.
Hannah Slaughter, a senior economist at the Resolution Foundation, said: “Britain is likely to usher in 2026 with rising unemployment and the risk that pay packets could start shrinking again. Policymakers need to react to these trends.”