RESEARCH — Jan. 20, 2026
Global Economic Outlook: January 2026
By Ken Wattret
Resilience of growth not guaranteed
Arguably the key macroeconomic theme of 2025 was the remarkable resilience of economic activity — and financial markets, April excepted — during a period of high uncertainty related to seismic shifts in US policy across a range of issues. Our current forecasts imply similar global economic conditions during 2026, in other words, a continuation of near-potential real GDP growth.
Continued resilience of growth to geopolitical developments is not guaranteed. One escalating concern is that developments that we would have previously considered to be “tail” risks — for example, US-EU tensions over Greenland — have become more probable. Another is the US administration introducing another layer of tariffs to those “doing business” with Iran. At the same time, the AI spending-related boost to growth could be giving a misleading impression of how resilient economic conditions would be to additional adverse shocks.
Geopolitics in the spotlight
The new year has got off to an eventful start, with developments in Venezuela and Iran, the US’ approach, and the potential implications dominating the headlines.
The near-term prospects for commodity and financial markets have become more uncertain accordingly and, in the case of the recent rise in crude oil prices, run counter to some key aspects of our predictions for 2026—namely, supply-driven oil price declines leaning down on inflation rates, extending monetary policy easing cycles and supporting growth.
We are not revising our forecasts materially at this juncture, given the uncertain circumstances, but we are cognizant of the significant level of risk surrounding some of them.
How much will GDP grow in 2026 and beyond?
While our forecasts did not change materially in January’s update, we continue to expect slowdowns in mainland China, India, Canada, Brazil, the eurozone, and the UK this year.
National growth prospects differ, as do some of their drivers, although there are some common factors contributing to the expected slowdowns. Most are trade-related, including unfavorable base effects stemming from 2025’s tariff front-loading. Rebalancing will be a key theme for two of those economies — mainland China and the eurozone — although in the case of mainland China this is likely to be easier said than done.
Slowdowns are the base case, not hard landings, reflecting various expected supports for growth in 2026, including lower inflation and policy rates. Still, we cannot fully rule out the latter in some economies in such an uncertain environment. Fiscal dynamics for 2026 are a mixed bag, with looser policy expected to be helpful to growth in a few major economies, including the US, mainland China, Japan and Germany, whereas the opposite applies for some others, including France and the UK.
What is our forecast for the US economy?
The adjustments to our economic forecasts in our January update were relatively minor, but one of the noteworthy changes is somewhat higher US growth in 2025 and 2026. This primarily reflects recent activity data, including stronger-than-expected real GDP growth in the third quarter of 2025.
US employment data has been less encouraging. Nonfarm payroll employment rose by 50,000 in December 2025, well short of expectations, while the prior two months’ data was revised down by a combined 76,000. The net result was an average rise over the past eight months of just 12,000, down from 150,000 over the preceding year.
The bright spot in the employment report was a fall in the unemployment rate to 4.4% from a downwardly revised November level. This reduced concerns about an imminent material deterioration in the outlook and supported the “low hire, low fire” characterization of US labor market conditions over recent months.
What does our Purchasing Managers Index data tell us about the economy?
S&P Global’s Purchasing Managers Indexes (PMIs®) have already shown some loss of momentum. While there were ups and downs over the course of 2025, the global composite index generally remained indicative of near-potential global real GDP growth.
Output expectations have been persistently weak, although this was not exerting a significant drag on current activity. December 2025’s PMI® data showed some tentative signs that this might be changing for the worse. January’s “flash” figures, which will be published from the 23rd, will provide an early indication of the resilience, or otherwise, to recent developments.
What else are we watching this month?
The legal probe into Federal Reserve Chair Jerome Powell has put the issue of Fed independence back in the spotlight. Still, it has not shifted futures market expectations of only limited and gradual policy rate cuts in 2026, which have moved toward our view. At the time of writing, a further cut of 25 basis points was not fully priced in until June’s policy meeting, matching our forecast. We expect the estimated neutral range of 3.00%-3.25% to be reached in September, again broadly aligned with futures markets.
Nor has the investigation shifted market-derived measures of inflation expectations out of their recent ranges. The prevailing view is that regardless of who leads the Fed, it will not materially alter the evolution of monetary policy, with board members typically operating with a high degree of autonomy. Time will tell. We generated an alternative scenario to assess the implications should this change.
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.