RESEARCH — Dec. 9, 2025
Top 10 Economic Insights for 2026
1. The US economy is not en route to a recession, with growth to be supported by a few key tailwinds.
Our base case is for another year of close-to-potential real GDP growth in 2026. Various fiscal tailwinds include personal tax cuts, elevated refunds, and rising federal spending on defense and border security.
Factors working in the other direction include continued elevated uncertainty, declining spending on structures in the manufacturing sector, and some financial headwinds, including rising corporate credit spreads and an expected decline in equity values.
2. Domestic demand prospects in Western Europe are improving, although overall growth rates will remain subdued.
Germany's more expansive fiscal stance is expected to have a gradually more positive effect on its growth rate, along with spillovers to the rest of the region. Domestic demand in Western Europe will also be supported by resilient labor market conditions in most countries, moderating consumer price inflation rates, and the lagged effects of more accommodative monetary policies.
Working in the opposite direction, negative annual growth contributions from net trade are generally forecast across the region due to a combination of factors including stronger currencies and higher tariffs on exports to the US.
3. Growth in mainland China will slow relative to 2025, amid crosswinds from external uncertainties and enhanced stimulus measures.
Mainland China’s export strength during 2025 is forecast to lose momentum throughout 2026, although lower US tariffs and China’s increasing share of global trade — particularly in emerging economies — are expected to provide some support.
Pro-consumption policy stimulus will be stepped up via increased subsidy-oriented government support for consumption of services, although high savings and weak labor market conditions are expected to continue to weigh down spending growth. Government-led investment will pivot from industries with overcapacity toward infrastructure and innovative sectors such as AI, new materials, aerospace, low-altitude aircraft and quantum technology.
4. India will remain the world’s fastest growing large economy, although we expect a slight moderation in growth.
Key drivers of the forecast marginal slowdown in India’s annual real GDP growth in 2026 compared with 2025 include high US tariffs on Indian exports, increasing the drag from net exports. Elevated uncertainty is also expected to weigh down private investment. These negative impacts on growth are expected to be cushioned by strength in services exports and resilient consumer spending, boosted by fiscal and monetary policy support, including the reduction in the goods and services tax (GST).
5. Growth in developing economies will outperform larger emerging economies, driven by resilient domestic demand and 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 the Asia-Pacific region.
Weaker export prospects are likely to be partly offset by the positive effects on domestic demand of moderating inflation and further central bank easing, although national prospects for both vary.
Developing economies — defined as less-industrialized countries with lower GDP per capita, relatively underdeveloped 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.
6. AI is both a positive and negative risk to 2026’s growth outlook.
On the positive side, spending on AI-related structures, equipment, software, and research and development (R&D) could outpace our expectations.
The Asia-Pacific region stands out as one that could rapidly advance its global role as AI adoption accelerates. Strong US demand lifted the region’s technology exports throughout 2024–25 and this momentum is set to continue into 2026. Spending on data centers is expected to pick up in 2026.
Conversely, a major correction in equity prices would have significant negative effects on demand through various channels. The major technology companies that have seen their valuations rise in the recent period are generally mature businesses and profitable. Traditional valuation metrics are also less elevated at present.
However, economic conditions in many regions are much less robust currently, leaving them more susceptible to being tipped into recession. The policy space to respond to an adverse shock is also generally more constrained at present.
7. Supply-driven declines in crude oil prices are expected to contribute to generally moderating consumer price inflation rates.
Analysis from S&P Global Energy points to a combination of rising production and modest demand growth markedly increasing the near-term global crude oil supply surplus, pushing Dated Brent prices below US$60 per barrel (/b) in early 2026. This is a key contributing factor to our forecasts of somewhat lower annual average consumer price inflation rates in 2026 in many economies and across most regions.
The notable exceptions include the US, India and mainland China, although the forecast increases in their average annual consumer price inflation rates in 2026 reflect different influences.
Core consumer price inflation rates have been elevated in some of the larger advanced economies since early 2025, reflecting higher core goods inflation rates and a stalling of the post-pandemic downward trend in services inflation rates. The moderation of services inflation is forecast to resume in 2026.
8. Many central bank easing cycles have further to go, although the scope for rate cuts varies considerably.
The US Federal Reserve’s easing cycle is expected to extend through to 2026, culminating in a fall in the estimated neutral range for the funds rate of 3.00%–3.25%. This, coupled with US dollar depreciation, is supportive of additional monetary policy easing in many emerging and developing economies.
Outside of the US, monetary policy prospects for advanced economies are mixed. Unusually, some major central banks have front-run the Fed’s easing cycle, implying less scope for them to lower rates in 2026 in tandem with the expected Fed cuts.
The central banks that pursued the most defensive monetary policies during 2025, including those in Brazil, Russia and Türkiye, have the most room to reduce their policy rates in 2026.
9. The US dollar’s depreciating trend is forecast to resume, but with significant variations in key bilateral exchange rates.
Our model-based forecast for the nominal broad effective US dollar index incorporates a relatively modest 2% decline in 2026, following an estimated 5% drop in 2025, consistent with less favorable US interest rate differentials and persistent, although narrowing, external imbalances.
Of the ten advanced economy currencies with the highest weights in the US dollar index, most are expected to appreciate against the dollar during 2026.
Our forecasts for the major emerging economy currencies versus the US dollar are more divergent, reflecting differences in their fundamental drivers.
10. The trend of steepening sovereign yield curves, although stalling from mid-2025, is expected to resume.
The fundamental factors driving steeper sovereign yield curves since 2023 are expected to persist in 2026. Central bank rate cuts generally have further to go, for the reasons already highlighted, while the parlous state of the public finances in many of the world’s largest economies points to a significant premium still being required to hold longer-maturity sovereign bonds.
Moderating inflation and lower short-term interest rates are expected to lean slightly downward on US Treasury yields over the course of 2026. However, for many of the largest advanced economies, the situation in sovereign debt markets could be characterized as an unstable cocktail of concerns. Short-dated US Treasurys are expected to benefit from continued strong growth in the issuance of US dollar-backed stablecoins.
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.