Global Economy Shows Resilience, But Trade Tensions And Fiscal Strains Cloud Outlook, UN Warns

Declining inflation and monetary easing offer
relief, yet subdued investment and lingering uncertainties
weigh on global momentum

New
York, 8 January 2026 – Global
economic output is forecast to grow by 2.7 per cent in 2026,
slightly below the 2.8 per cent estimated for 2025 and well
below the pre-pandemic average of 3.2 per cent, according to
the World Economic Situation and Prospects 2026,
released by the United Nations today.

During 2025,
unexpected resilience to sharp increases in U.S. tariffs,
supported by solid consumer spending and easing inflation,
helped sustain growth. However, underlying weaknesses
persist. Subdued investment and limited fiscal space are
weighing on economic activity, raising the prospect that the
world economy could settle into a persistently slower growth
path than in the pre-pandemic era.

The report notes
that a partial easing of trade tensions helped limit
disruptions to international commerce. However, the impact
of higher tariffs, coupled with elevated macroeconomic
uncertainties, is expected to become more evident in 2026.
Financial conditions have eased amid monetary loosening and
improved sentiment, but risks remain high given stretched
valuations—especially in sectors linked to rapid advances
in artificial intelligence. Meanwhile, high debt levels and
borrowing costs are constraining policy space, especially
for many developing economies.

“A combination of
economic, geopolitical and technological tensions is
reshaping the global landscape, generating new economic
uncertainty and social vulnerabilities,” said United
Nations Secretary-General António Guterres. “Many
developing economies continue to struggle and, as a result,
progress towards the Sustainable Development Goals remains
distant for much of the world.”

Regional
economic outlook: expansion broadly steady, but
uneven

Economic growth in the United
States is projected at 2.0 per cent in 2026, compared to 1.9
per cent in 2025, supported by monetary and fiscal easing.
However, a softening labour market will likely weigh on
momentum. In the European Union, economic growth is forecast
at 1.3 per cent in 2026, down from 1.5 per cent in 2025, as
higher U.S. tariffs and ongoing geopolitical uncertainty
dampen exports. Output in Japan is expected to expand by 0.9
per cent in 2026, compared with 1.2 per cent in 2025, with a
modest domestic recovery partly offsetting weaker external
conditions. In the Commonwealth of Independent States and
Georgia, growth is projected at 2.1 per cent in 2026, mostly
unchanged from 2025, even as the war in Ukraine continues to
weigh on macroeconomic conditions.

In East Asia,
growth is projected at 4.4 per cent in 2026, down from 4.9
per cent in 2025 as the boost from front-loaded exports
fades. China’s economy is expected to grow by 4.6 per
cent, slightly lower than in 2025, supported by targeted
policy measures. In South Asia, growth is forecast at 5.6
per cent in 2026, easing from 5.9 per cent, led by India’s
6.6 per cent expansion, driven by resilient consumption and
substantial public investment. In Africa, output is
projected to grow by 4.0 per cent in 2026, marginally up
from 3.9 per cent in 2025. However, high debt and
climate-related shocks pose significant risks. In Western
Asia, GDP is expected to grow by 4.1 per cent in 2026, up
from 3.4 per cent in 2025, yet the region remains exposed to
geopolitical tensions and security risks. In Latin America
and the Caribbean, output is expected to expand by 2.3 per
cent in 2026, slightly down from 2.4 per cent in 2025, amid
moderate growth in consumer demand and a mild recovery in
investment.

International trade facing
headwinds; investment remains
subdued

Global trade proved resilient in
2025, expanding by a faster-than-expected 3.8 per cent
despite elevated policy uncertainty and rising tariffs. The
expansion was driven by the front-loading of shipments early
in the year and robust growth in services trade. However,
momentum is expected to ease, with trade growth projected to
slow to 2.2 per cent in 2026.

At the same time,
investment growth has remained subdued in most regions,
weighed down by geopolitical tensions and tight fiscal
conditions. Monetary easing and targeted fiscal measures
have supported investment in some economies, while rapid
advances in artificial intelligence fuelled pockets of
strong capital spending in a few large markets. The report
cautions, however, that the potential gains from AI, when
realised, are likely to be unevenly distributed, risking a
widening of existing structural
inequalities.

Inflation continues to slow,
yet strains to the cost of living
persist

The report also underscores that
high prices remain a key global challenge even as
disinflation continued. Headline inflation declined from 4.0
per cent in 2024 to an estimated 3.4 per cent in 2025 and is
projected to slow further to 3.1 per cent in 2026. While
overall inflation has moderated, elevated prices continue to
weigh on real incomes. Unlike the globally synchronized
surge of previous years, inflation trends have become more
uneven, shaped by recurring supply bottlenecks amid rising
geopolitical and climaterelated risks.

Policymakers
face an increasingly complex inflation landscape, where
supply risks call for a more coordinated and forward-looking
approach. Monetary policy remains central but needs to work
with credible fiscal frameworks and targeted social measures
to protect vulnerable groups. Sectoral polices also play a
role by expanding productive capacity and strengthening
supply chains, especially in food, energy and logistics.
Coordinated action across monetary, fiscal and industrial
policies will be critical to managing persistent price
pressures without compromising social stability or long-term
growth.

“Even as inflation recedes, high and still
rising prices continue to erode the purchasing power of the
most vulnerable,” said Li Junhua, United Nations
Under-Secretary-General for Economic and Social Affairs.
“Ensuring that lower inflation translates into real
improvements for households requires safeguarding essential
spending, strengthening market competition, and tackling the
structural drivers of recurring price
shocks.”

Call for renewed multilateral
action

The report underscores that
navigating an era of trade realignments, persistent price
pressures, and climate-related shocks will demand deeper
global coordination and decisive collective action at a time
when geopolitical tensions are rising, policies are becoming
more inward-looking, and impetus towards multilateral
solutions is weakening. Sustained progress will depend on
rebuilding trust, strengthening predictability, and renewing
the commitment to an open, rules-based multilateral trading
system.

The Sevilla
Commitment, the outcome document of the Fourth
International Conference on Financing for Development,
offers a forward-looking blueprint to strengthen
multilateral cooperation, reform the international financial
architecture, and scale up development finance. Delivering
on its key priorities—including clearer debt workout
modalities and expanded concessional and climate
finance—is essential to reducing systemic risks and
fostering a more stable and equitable global
economy.

Note:

The World
Economic Situation and Prospects 2026 is available at desapublications.un.org.

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