After a turbulent 2025, which witnessed myriad key flashpoints affecting the global economy without preventing the widespread expectations that global economic growth would exceed 3 percent for the year from being met, one wonders what lies in store for 2026. Will the likes of the ferocious US tariff war, sticky inflation rates and persistent geopolitical tensions between the world’s economic heavyweights continue—or even escalate? Will we see new trade routes forming to stave off the fallout from the tariff war? And will we witness even more giant leaps in productivity gains resulting from profound AI-related advancements?
Here are three of the most significant factors likely to impact the global economy over the coming year:
Artificial intelligence: the key driver of US growth
Advancements in artificial intelligence (AI) will again play a pivotal role in shaping global economic trends this year, with GDP (gross domestic product) growth being spurred by further productivity gains across the sector. As such, any potential slowdown in the global economy is likely to be tempered by these gains. Estimates suggest that the first six months of 2025 saw around one-third of US GDP growth attributable to AI-related investment, including the growth and development of data centres, more sophisticated model-training techniques and significant advances in semiconductor innovation.
“This acceleration is laying the foundation for a multiyear uplift,” Deloitte predicted. “At the global level, we find that AI diffusion could generate one to two additional years of growth over the next decade, and the potential uplift for the US is even larger at two to four years as higher capital investment combines with measurable productivity gains.”
Moreover, with AI investment likely to be a major driver of business-investment growth, JPMorgan Chase has projected a 33-percent expansion in AI-related spending via hyperscaler capital expenditure, following a 69-percent surge in 2025. “AI-related physical capex reported in the national accounts—data center construction, computer and communications equipment—rose 26 percent inflation-adjusted in the four quarters ending 2Q25,” according to Ginger Chambless, the US bank’s head of market insights, commercial banking. “Based off current forecasts, we expect the year-on-year rise in physical tech capex, which accounts for 1.5 percent of GDP, could be half as much in 2026, and half again in 2027.”
Undiminished geopolitical risks
As the stark reality of economic multipolarity further solidifies over the coming year, geopolitical standoffs will continue to intensify as the United States and China vie for economic influence worldwide. As such, the global economy will remain on edge in 2026 and will likely be prone to flashes of pronounced volatility amid the intensifying competition.
The US’ provocative decision in December to approve a record arms sale to the island province of Taiwan—which promptly triggered Beijing to impose sanctions against the US firms and executives most directly involved in the deal—is just one recent geopolitical flashpoint that could have profound implications for the global business community this year.
Although global trade will likely remain resilient, renewed geopolitical hostilities could well surface. The most impactful hostilities for the global economy are, of course, those between the US and China, with relations having every chance of souring further. US-India relations also appear to be on shakier ground than they have been in decades, especially after the US imposed a 50-percent tariff on Indian goods late last year in response to firmly deadlocked trade negotiations and India’s continued purchase of Russian oil, despite US pressure.
US tariffs are dramatically reshaping the global trade map. To reduce their overall exposure to these often harsh punitive measures, countries are increasingly open to exploring new trading relationships and agreeing to new trade deals, such as the European Union’s (EU’s) free-trade agreements. The West is also demonstrating a greater willingness to deal with Asian countries.
“They are seeking to diversify their trade relationships and maintain an open economic order,” according to Boston Consulting Group (BCG), which also recently suggested that countries may instead seek to promote their domestic industries instead of necessarily seeking new trading partners. “Geopolitical uncertainty remains high, and a fracturing global trade landscape means that a longer-term scenario of distinct groups of countries trading more among themselves than with each other is a real prospect.”
Elevated but easing inflation
Will prices remain elevated in 2026? Probably, but many expect a general downward trend in inflation to transpire throughout the year. As such, some economies could well see global prices nearing or even reaching their formal central bank targets.
The US’ annual inflation rate has remained above the Federal Reserve’s (the Fed’s) formal long-run target of 2 percent for almost five years. According to a recent Rabobank analysis, it may remain that way for the first six months of the year. “Core inflation is therefore moving mostly sideways around 3 percent, but we expect the full impact of the import tariffs has yet to materialise,” the Dutch bank noted. “Initially, importers bore the brunt, but now exporters and consumers appear to be next in line. This delayed pass-through means that a decline in core inflation is likely only in the second half of 2026.”
It is also likely that further monetary easing will transpire during the year, although few expect the Fed to implement frequent rate cuts. Indeed, JPMorgan Chase is pencilling in just one more cut during this phase of the easing cycle. “Although the lack of economic data over the past couple of months due to the government shutdown has complicated near-term decision-making, the Fed cut 25bp at the December meeting, and we expect another cut in early 2026,” the US’ biggest bank wrote in its December 15 outlook report for 2026. “If correct, this would result in a target range of 3.25-3.50 percent before going on hold.”
Elsewhere, a disinflation trend could still materialise globally among major economies. “In the euro area, the outlook is for headline inflation to undershoot the European Central Bank (ECB) target of 2 percent, with the economy running below its potential. Inflation is expected to run 1.7 percent at the end of 2026 and in 2027,” Morgan Stanley wrote in its “2026 Economic Outlook: Moderate Growth With a Range of Possibilities” report. “In Japan, headline and core inflation have been above target for the past couple of quarters, but the underlying trend has been weaker, prompting a forecast for inflation to edge below 2 percent in late 2026 and then rise back to policymakers’ 2 percent target in 2027. In China, core CPI inflation is likely to be positive, but the GDP deflator is expected to hover below 0 percent as the economy’s excess capacity dissipates only gradually.”
Nonetheless, much of the world will continue to observe sticky prices as heightened geopolitical tensions, coupled with elevated import tariffs remaining in place for many countries, drive inflationary pressures. Should economic growth overshoot estimates, moreover, unexpected demand growth and/or labour-market tightness may also contribute to a more inflationary environment.
Overall, recent analyses have projected that the global economy will register healthy growth in 2026. Goldman Sachs has forecast global GDP growth of 2.8 percent for the year ahead, with US growth accelerating to 2.6 percent and China expanding by 4.8 percent. “The US is expected to substantially outperform consensus estimates because of tax cuts, easier financial conditions, and a reduced drag on the economy from tariffs,” according to Goldman’s research. “As a result of tax cuts, for example, consumers will receive around an extra $100 billion (0.4 percent of annual disposable income) in tax refunds in the first half of next year.”
Morgan Stanley, meanwhile, noted the potential for more upside to economic growth should AI adoption drive substantial increases in productivity. “A productivity-driven scenario is based on the possibility that adoption of AI could accelerate and its impact on the economy occur more quickly than expected,” according to its “2026 Economic Outlook” published on November 19. “If productivity gets a big boost, the economy could grow faster than expected—even as prices stay low. Under this scenario, unemployment holds steady in 2026, with businesses needing somewhat fewer workers, but without widespread job losses.”
For China, Morgan Stanley has projected real GDP growth of 5 percent in 2026, with “front-loaded government policy support” as the key driver, followed by 4.5 percent in 2027 as the effects of fiscal stimulus wane. “Growth in the euro area is likely to remain moderate at 1.1 percent in 2026 and 1.3 percent in 2027 as German fiscal support is partially offset by consolidation in France and Italy,” the bank added.
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