Global outlook: resilience holding despite shocks
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The world economy has absorbed an unusually heavy set of shocks – a turbulent trade war,elevated policy uncertainty adn a government shutdown in the U.S. – yet growth has held up far better than many feared. after expanding an estimated 3.4% in 2025, global GDP is expected to ease to around 3% in 2026 before picking up again in 2027.
A shift toward easier policy in advanced economies will underpin the expansion. the Federal Reserve is expected to cut another 100 basis points next year, providing a crucial backstop as AI investment accelerates and deregulation broadens. Meanwhile, the inflationary drag from tariffs in the U.S. is met with a very different dynamic abroad: for most countries, weaker demand and redirected goods flows are pushing inflation down.
Source: Bloomberg
Momentum cooled briefly at the start of President Donald Trump’s second term, as policy uncertainty spiked and government agencies shuttered. But as shutdown staff returned to work in Q4, global trackers swung back into positive territory – an encouraging sign as 2026 approaches.
What is driving growth: the AI capex wave, rate cuts and lighter regulation
The next leg of global expansion rests heavily on the investment boom tied to artificial intelligence. The U.S. is already seeing a surge in AI-related capex as tax incentives, deregulation and falling rates combine. With uncertainty fading and new trade agreements expected next year, corporate spending is set to broaden further.
This backdrop explains why U.S. GDP growth is projected to accelerate to roughly 2.3% in 2026 from 1.8% this year. The Fed’s focus has shifted: policymakers see greater danger in a weakening labor market than in another inflation uptick. With unemployment expected to hold near 4.5% into mid-2026, a full year of rate cuts is likely.
Tariffs will keep U.S. inflation somewhat elevated, but the Fed appears increasingly comfortable with the trade-off if it protects hiring and prevents a deeper slowdown.
The tariff divide: inflation in the US, disinflation everywhere else
The trade war continues to deliver a sharply divided set of outcomes.
In the U.S., tariffs are pushing up import costs, even though companies have absorbed much of the pressure through margin compression. The broader effect is a squeeze on corporate profitability that encourages companies to cut costs and slow hiring.
Outside the U.S., the dynamic flips. Goods diverted from U.S. markets are weighing on global prices, leaving inflation pressures softer across europe and emerging markets. Global inflation is projected to end 2025 near 3%, down sharply from 5% in late 2024, and stabilise around similar levels through 2026.
Much now hinges on China – where the mismatch between supply and domestic demand remains one of the biggest deflationary forces in the global economy.
Central banks diverge in 2026: Fed easing, BoJ tightening, others somewhere in between
major central banks are set to chart dramatically different paths next year.
The Fed is expected to deliver four rate cuts as it prioritizes lab