The global economy faced many challenges in 2025, including escalating trade tensions, uneven but moderate growth, and growing concerns about high inflation and debt levels in many parts of the world. Many of these problems are expected to carry over into 2026.
Global growth will slow moderately – from 3,2 percent in 2025 to 2,9 percent in 2026, the Organization for Economic Cooperation and Development (OECD) estimates. The organization says that the world economy has shown resilience this year, but remains fragile.
Trump's tariffs
US President Donald Trump's administration shocked the world in April by introducing a new tariff regime aimed at reducing large US deficits by reshaping global trade flows. The move has sent shockwaves through markets, uncertainty among companies and adjustments to supply chains.
Washington has since reached agreements with a number of trading partners. However, the average US tariff rate has risen from 2,5 percent when Trump returned to the White House in January to 17,9 percent - the highest level since 1934 - according to calculations by the Yale University Budget Lab.
The U.S. Supreme Court is expected to rule next year on whether a president can bypass Congress and impose tariffs by invoking a national emergency. Many observers expect the highest court to uphold lower courts' position that Trump's tariffs are unconstitutional.
Even if the judges overturn the tariffs, the administration could resort to other legal means to reimpose some of the duties. That's why tariffs are likely to remain a key issue in 2026.
US-China trade tensions
Alicia Garcia-Herrero, chief economist for Asia and the Pacific at French investment bank Natixis, said that Trump's tariffs will hit Asian countries harder in 2026. She cited continuing geopolitical tensions, increasing trade fragmentation and the lack of deeper regional integration that could mitigate the effects of the tariffs.
Trade frictions between the US and China, the world's two largest economies, are also likely to continue. Tensions eased somewhat after Trump and Chinese President Xi Jinping met in October and agreed to a 12-month truce in the trade war.
However, this truce remains fragile, and fundamental economic and strategic problems remain unresolved.
"The US-China agreement looks more like a ceasefire than a permanent peace agreement that would end the trade war between the two countries," Rajiv Biswas, CEO of risk analytics firm Asia Pacific Economics, told DW.
"The US and China remain locked in a geostrategic competition, which fuels rivalry in key areas such as defense technologies and advanced manufacturing industries such as artificial intelligence, quantum computing and robotics," he added.
Biswas stressed that the battle for technological dominance between the US and China is likely to continue next year. He said there will be "increasing use of tariffs, sanctions and other economic measures in key areas of technological rivalry, such as advanced military equipment, artificial intelligence chips, quantum computing and robotics."
Chinese economy - supply and demand imbalance
Despite this, China's economy is expected to remain relatively resilient in the coming years, with growth of around 5 percent, in line with recent government targets.
However, deep-rooted structural problems remain, such as "demographic aging, declining marginal productivity of capital, and excess capacity in many industrial sectors, such as steel, shipbuilding, and chemicals," Biswas said.
Neil Shearing, chief economist at London-based Capital Economics, said in an analysis that China's growth model "continues to favor supply over demand, leading to chronic overcapacity and persistently weak household consumption."
To alleviate these problems, Chinese leaders have recently pledged to boost domestic consumption and stabilize the huge and troubled real estate market, among other things. "Policymakers are promising to address this problem, but imbalances will remain a feature of the Chinese economy well into 2026," said Shearing.
Inflation and high debt
Inflation, meanwhile, has remained elevated in many parts of the world, including the United States and the eurozone, partly due to tariffs. Further increases in trade barriers or disruptions in supply chains could accelerate price increases, leaving central banks with a dilemma: whether to raise interest rates to curb inflation or keep them low to support growth.
Rising interest rates could harm economic growth and cause a sharp jump in debt servicing costs in highly indebted and financially weaker countries.
Many eurozone countries, such as France, are particularly vulnerable, as their governments struggle to push through unpopular spending cuts to rein in deficits and rising debt.
"The fiscal pressures that have repeatedly rattled investors this year will continue to haunt markets into 2026. It is now widely accepted that public finances in several major advanced economies are on an unsustainable path," Shearing wrote.
Germany's economy, the European Union's largest, is still struggling to emerge from a long-term recession and is set to receive a boost next year from increased government spending on defense and infrastructure. But business sentiment remains gloomy.
Leading economic institutes have recently lowered their growth forecasts for 2026. The Ifo Institute, for example, now predicts growth of just 0,8 percent, down from an earlier estimate of 1,3 percent. The German government, however, is still forecasting growth of 1,3 percent in 2026.
What if the artificial intelligence bubble bursts?
The AI boom is expected to continue next year. Major US technology companies have already allocated hundreds of billions of dollars to build and expand infrastructure, such as data centers.
It is assumed that these investments will significantly contribute to the growth of gross domestic product in the US, compared to other parts of the world, where investments are significantly lower.
Still, investors are growing nervous about the high valuations of US tech companies, as it is not yet clear whether the massive investments in artificial intelligence infrastructure will ultimately pay off. Some fear that a bubble has formed that could burst and trigger a sell-off in markets.
Alicia Garcia-Herrero told DW that the "AI revolution is structural" and that technological transformation and adoption will continue into 2026. She warned, however, that a sharp decline in AI investment, if the bubble bursts, would hit the US economy and households hard, likely pushing the world's largest economy into recession and slowing global growth.
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