Shaky Stability: What To Expect From The Global Economy

The world’s economy managed to weather a rocky 2025 without collapsing — but calm is not the same as recovery. Lower inflation and tentative rate cuts may ease the pressure, yet growth looks set to slow and new risks loom. One headline for 2026 will be artificial intelligence. Big bets on data centres, automation and software could lift productivity — or they could feed a US-tech frenzy. A Deutsche Bank poll of institutional clients found that a bursting tech bubble was the single biggest concern, with 57% naming it among their top three risks. That fear now sits at the centre of how markets and policymakers view the year ahead. Trade tensions are another weight on the outlook. After shock tariff announcements in 2025, global trade has steadied a little, but US tariffs remain higher than before and legal questions over them are unresolved. Economists expect ongoing geopolitical strains to encourage firms to shorten and diversify supply chains, a trend that will likely reduce trade volumes and push up costs over time. Inflation is finally easing in many rich countries, creating room for central banks to loosen policy — though not to pre-pandemic levels. The Bank of England and European Central Bank face different pictures: Britain was flagged by the IMF as an outlier last autumn, yet the autumn budget’s breathing space could help the BoE nudge inflation close to 2% by summer. The ECB, watching inflation already near target, is expected to be cautious about further moves. Politics will also shape monetary policy. The Federal Reserve chair’s term ends in May, and whoever takes over will do so under the shadow of pressure from Washington — a factor markets will watch closely. Public finances remain fragile after higher borrowing costs pinched governments in 2025. The US, UK and France all felt investor scrutiny last year; the need to fund defence and growth plans while managing debt will keep fiscal policy under the microscope in 2026. On jobs, the picture is mixed. Hiring cooled across advanced economies, pushing unemployment higher — 5.1% in the UK, the highest outside the pandemic in nearly a decade, and 4.6% in the US, a four-year peak. Wage growth has held up, helping household finances but worrying central bankers who fear a rekindling of inflation. Youth unemployment in Britain and falling labour-force participation due to ageing and ill health remain political flashpoints. In short, 2026 looks like a year of small margins. The shocks that dominated recent years have eased, but the path ahead will depend on whether technology investment translates into real economic gains or simply inflates asset prices — and on how policymakers steer through a landscape where politics, trade and debt all matter. --- Managing your business finances? TaxAce provides smart online accountancy services for UK businesses with flexible monthly plans. Image and reporting: https://www.theguardian.com | Read original article