Global Economic Outlook 2026

Rebalancing will be a key theme for mainland China and the eurozone, with growth slowdowns forecast in both.

Mainland China’s export strength in 2025 is expected to lose momentum in 2026, putting more emphasis on domestic demand to support growth. While pro-consumption policy stimulus is stepping up, high household savings and soft labor market conditions are going to continue to weigh on spending.

Government-led investment is expected to pivot from industries with over-capacity towards infrastructure and innovative sectors, including artificial intelligence (AI), aerospace, and quantum technology. In sum, having achieved the official 5% growth target in 2025, we continue to expect annual real GDP growth in mainland China to slip in 2026.

Domestic demand prospects in the eurozone are improving, helped by Germany's more expansive fiscal stance. Other positives include resilient labor market conditions in most countries, moderating inflation rates, and the lagged effects of more accommodative monetary policies.

External factors are pushing in the opposite direction, however, including stronger currencies, tariffs on exports to the US, and a structural loss in market share in mainland China and in third markets.

Other headwinds to eurozone growth include fiscal consolidation in several countries, notably France among the larger ones, and elevated uncertainty dampening investment. Net, we project that annual real GDP growth in the eurozone will end up being somewhat weaker in 2026 than in 2025. 

Developing economies are forecast to outperform larger emerging economies growth-wise, helped by less exposure to US tariffs. Annual real GDP growth rates in many of the larger emerging economies are forecast to slow in 2026, partly reflecting the unwinding of the boost from tariff front-loading in 2025.

The slowdown is expected to be most pronounced in Asia-Pacific, although some economies in the region will continue to benefit from ongoing investments in high-value sectors such as semiconductors and AI.

Developing economies — defined as less-industrialized countries with lower GDP per capita, relatively under-developed financial markets and low inward foreign investment — have a lower vulnerability to US tariffs due to their lesser integration into global supply chains. The forecast downturns in their export growth rates in 2026 are less pronounced as a result.

Domestic demand in developing economies will also benefit from moderating inflation rates and further monetary policy easing, although prospects for both vary at national level. 

A moderation in India’s growth rate is forecast, though from a high base. Given the strength of recent real GDP data for the July-September quarter, fiscal year 2025 is on track for an impressive 7% growth rate.

Key drivers of the forecast slowdown in 2026 include high US tariffs on Indian exports, increasing the negative drag from net exports, and the dampening effect of elevated uncertainty on private sector investment — a recurring theme across countries.

These negative effects are expected to be cushioned by strength in other areas, including services exports and consumer spending, with the latter boosted by fiscal and monetary policy stimulus, including the reduction in the Goods and Services Tax.

While fiscal pressures will constrain public investment, it is likely to remain focused on physical and digital infrastructure expansion, helping India to keep pace with global trends in AI-related technology adoption.

The US is not heading into recession, even with recent softer employment data. With economic activity to be supported by various tailwinds, speculation of a recession in the period ahead is likely to remain just that, speculation. 

The US dollar’s depreciating trend is forecast to resume, with variations across key bilateral exchange rates. Our model-based forecast for the nominal broad effective US dollar index incorporates a further decline in 2026, albeit smaller than 2025’s, consistent with less favorable US interest rate differentials and persistent — but narrowing — external imbalances.

Most of the advanced economy currencies with the highest weights in the US dollar index are expected to appreciate against the dollar in 2026. The Japanese yen is forecast to outperform, consistent with monetary policy divergence versus the US. The forecast gain for the UK pound is relatively modest, reflecting the UK’s various problems. 

Our forecasts for the major emerging economy currencies versus the US dollar are more divergent, reflecting differences in their fundamental drivers. Among those with the highest weights in the US dollar index, expected outperformers include some emerging European currencies. Expected underperformers include those expected to cut rates the most, including Russia and Türkiye, along with Mexico and Nigeria.  

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.