Global economy has gone through many challenges in 2025, including harsh ones trade tensions, uneven but moderate growth, as well as growing concerns about elevated inflation and debt levels in many parts of the world. A large part of those problems are expected to move into 2026 as well.
Global growth will slow down moderately - from 3,2 percent in 2025 to 2,9 percent in 2026, the Organization for Economic Cooperation and Development (OECD) estimates. In that organization, they state that the world economy has shown resilience this year, but that it still remains fragile. writes DW.
Trump's tariffs
Administration of the US President Donald Trump shocked the world in April by introducing a new customs regime aimed at reducing large American deficit by reshaping global trade flows. The move has sent shockwaves through markets, uncertainty among companies and adjustments to supply chains.
Meanwhile, Washington has reached agreements with numerous trading partners. Still, the average U.S. 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 Yale University's Budget Lab.
The US Supreme Court is expected to rule next year on whether the president can bypass Congress and impose tariffs by invoking a state of emergency. Many observers expect that the highest judicial instance will confirm the position of the lower courts that - Trump's tariffs are not legal.
Even if judges strike down those tariffs, the administration could seek other legal recourse to reimpose some of the duties. Therefore, tariffs will probably remain one of the key issues in 2026.
US-China trade tensions
Alicia Garcia-Herrero, Chief Economist for Asia and Pacific at French investment bank Natixis, said Trump's 2026 tariffs will hit Asian countries harder. She cited the continuation of geopolitical tensions, the growing fragmentation of trade and the absence of deeper regional integration that could mitigate the effects of tariffs as reasons.
Trade friction between the US and China, the world's two largest economies, is 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, that truce remains fragile, and basic economic and strategic problems remain unresolved.
"The US and Kine it looks more like a ceasefire than a permanent peace deal 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, fueling rivalry in key areas such as defense technologies and advanced manufacturing industries such as artificial intelligence, quantum computing and robotics," he added.
Biswas emphasized that the fight for technological dominance between the US and China will probably continue in the coming years. As he stated, 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-seated structural problems remain, such as "demographic ageing, declining marginal productivity of capital and overcapacity in many industrial sectors, such as steel, shipbuilding and the chemical industry," 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, China's leaders have recently promised to boost domestic consumption and stabilize the huge and troubled real estate market, among other things. "Decision-makers are promising to address the problem, but the imbalance will remain a feature of the Chinese economy in 2026," Shiring said.
Inflation and high debt
Inflation, meanwhile, has remained elevated in many parts of the world, including the US and the eurozone, partly due to tariffs. Further increases in trade barriers or disruptions in supply chains could accelerate price rises, 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 curb deficits and rising debt.
"The fiscal pressures that have shaken investors repeatedly this year will continue to haunt markets in 2026. It is now widely accepted that public finances in several major advanced economies are on an unsustainable path," Shearing wrote.
The German economy, the largest in the European Union, which is still struggling to emerge from a long-term stagnation, should receive a boost next year through increased government spending on defense and infrastructure. However, the mood in the business sector remains gloomy.
Leading economic institutes recently lowered their growth forecasts for 2026. The Ifo Institute, for example, now predicts growth of just 0,8 percent, compared to an earlier estimate of 1,3 percent. The German government, however, still forecasts growth of 1,3 percent in 2026.
What if the artificial intelligence bubble bursts
The boom in artificial intelligence is expected to continue in the coming year. Major US technology companies have already committed hundreds of billions of dollars to building and expanding infrastructure, such as server centers.
It is assumed that these investments will significantly contribute to the growth of the gross domestic product in the US, compared to other parts of the world, where investments are significantly lower.
Still, investors are increasingly 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 cause a selloff in the markets.
Alicia García-Herrero told DW that the "artificial intelligence revolution is structural" and that the technological transformation and its adoption will continue in 2026. She warned, however, that a sharp drop in investment in AI, should the bubble burst, would hit the US economy and households hard, possibly pushing the world's largest economy into recession and slowing global growth.
