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The global economy faces a year of moderated growth in 2026, marked by resilience in the face of trade disruptions but tempered by risks from an AI-driven stock market bubble and persistent geopolitical tensions, according to an analysis from The Guardian. The report uses five key charts to illustrate forecasts of slowing expansion, cooling inflation, heightened trade barriers, fiscal vulnerabilities and rising unemployment, painting a picture of an economy navigating fragility despite some positive trends.
Economists surveyed by the publication highlight the impact of US President-elect Donald Trump’s tariff policies, which are expected to disrupt international supply chains and add inflationary pressures. While global GDP growth is projected to ease from 3.2 per cent in 2025 to around 2.9 per cent in 2026, the outlook remains cautiously optimistic, with advanced economies like the US leading the G7 despite challenges. The analysis underscores the need for policymakers to address structural issues to sustain recovery.
AI-Driven Growth and Bubble Risks
One chart focuses on the potential of artificial intelligence to boost productivity through investments in data centres and automation, but warns of a tech bubble as a major risk. A survey of Deutsche Bank clients ranks a US stock market crash as the top concern for 2026, with 57 per cent placing it in their top three fears. Despite this, AI is seen as a tailwind, potentially accelerating growth if valuations hold.
Global forecasts show China’s economy slowing amid difficulties in stimulating domestic demand, while the US is expected to lead G7 growth, followed by Canada and the UK. Consumer spending remains squeezed from past inflation and high borrowing costs, adding to uncertainties.
Cooling Inflation but Lingering Pressures
Inflation is anticipated to normalise in wealthy nations, enabling central banks to conclude rate-cutting cycles. In the US, the focus is on potential deeper cuts under a Trump-influenced Federal Reserve. The UK may lag as a disinflation outlier, with the IMF forecasting the highest G7 inflation rate, though the Bank of England expects it to near 2 per cent by summer following recent budget measures.
Read also: Global Trade Set to Exceed $35 Trillion in 2025 Despite Geopolitical Headwinds
The European Central Bank faces stable near-2 per cent inflation in the eurozone, limiting further action. However, re-emerging risks, such as tariff-induced price hikes, could constrain monetary easing across regions.
Navigating Trade Tensions
Elevated trade barriers, exacerbated by Trump’s policies, pose a significant threat. The chart illustrates potential long-term damage from fragmentation, including supply chain diversification and near-shoring, which could reduce trade volumes and raise costs. Geopolitical issues may further entrench these trends, dampening global growth.
Fiscal Vulnerabilities and Bond Market Pressures
Advanced economies grappled with borrowing cost spikes in 2025, targeting high-debt nations like the US, UK and France. Events such as Trump’s fiscal proposals, the UK’s budget response and France’s political crisis underscore risks. Fiscal strains persist, with governments balancing growth needs against defense spending amid market scrutiny.
In the UK, improved budget headroom may ease immediate pressures, but local elections and leadership uncertainties loom.
Rising Unemployment Trends
Hiring demand weakened in 2025, pushing unemployment rates higher in the US (to 4.6 per cent) and UK (to 5.1 per cent). The chart warns of further rises due to tax policies, business uncertainty and AI adoption. Demographic factors like ageing populations and health issues exacerbate workforce participation challenges, though resilient wage growth provides some buffer.
Youth unemployment in the UK raises political alarms, while central banks monitor for inflationary signals.
Implications for Policymakers and Markets
The analysis conveys a tone of guarded optimism, noting economic resilience but emphasising fragility from policy uncertainties, AI hype and labour market strains. For 2026, coordinated responses to trade and fiscal challenges will be crucial to avoid deeper slowdowns.
Markets have reflected these sentiments, with indices showing volatility amid year-end adjustments.
