The Global Economy in 2026: Resilience, Risks, and Policies

High-level takeaways (business emphasis)

• Global growth: broadly stable but subdued — steady, lower-growth environment with concentrated upside risk from AI-led capex and persistent downside risks from trade fragmentation, geopolitics, and higher effective interest costs. This shapes corporate strategy, investment hurdles, and market selection.
• Policy implication for firms and investors: prioritize productivity-raising capex (AI, data centers, digitalization), diversify markets and supply chains, price for higher long-term financing costs, and expect more national/regional industrial policies and trade blocs rather than a return to uniformly open global trade.
• For public- and private-sector leaders: fiscal credibility, medium-term planning, and institutional design (fiscal councils, transparency) will determine who can borrow cheaply, sustain investment programs, and create jobs. Companies should monitor country policy credibility before committing long-term capital.

Frameworks, playbooks and policy processes

Fiscal rules and frameworks

• Fiscal rules (numerical limits on deficits/debt)
  • Sophisticated rules with enforcement → consolidation mainly via spending cuts.
  • Simpler rules → often encourage revenue/tax reform as a consolidation route.
  • Best practice: adopt rules in good times; embed in medium-term fiscal frameworks (MTFFs); back with fiscal councils, transparency, and enforcement mechanisms.
• Medium-term fiscal frameworks (MTFFs): required to operationalize rules and budget discipline.
• Fiscal councils / independent monitoring: sustain credibility and monitor compliance.

Trade strategy (for emerging markets)

• Join/expand bilateral, regional, and plurilateral trade agreements.
• Reduce internal trade costs (border procedures, logistics, infrastructure).
• Be cautious with industrial policy measures that raise trade costs — weigh short-term protection against long-run competitiveness.

Investment and job-creation playbook

• Require rigorous ex-ante ROI thresholds given higher cost of capital.
• Prioritize projects with clear returns (human capital, digital, and physical infrastructure).
• Job-creation pillars: foundational investments (human, physical, digital capital), regulatory reforms to improve business climate, and mobilizing private capital.

Concrete metrics, KPIs and targets

• Global growth: ~2.6–2.7% (2026), roughly same as 2024–25.
• Advanced economies (example: US): ~1.6–1.7% growth.
• Emerging market & developing economies: slipping from ~5% (pre-pandemic trend) to ~4% on average; country-level heterogeneity remains large.
• Per-capita outcomes since pandemic:
  • 1 in 4 emerging market/developing countries poorer than in 2019.
  • Low-income countries: ~40% poorer than 2019.
  • Fragile & conflict-affected states: ~60% poorer than 2019.
  • Low-income countries ≈ 10% behind advanced-economy income levels; fragile/conflict ≈ 20% behind.
• Trade growth:
  • 2025: ~3.4% (resilience).
  • 2026 expected: below 3% (approx. 2.5–3.0%); long-run trade growth likely 2.5–3.5% vs. ~5% in previous decades.
• Capex / AI-related investment:
  • Capex growth cited at ~13–15% (AI-related spending a major driver).
  • US reported wealth gains: ~$12 trillion last year (speaker attribution: ~$5 trillion to AI-related spending and ~$8 trillion to equity markets — stated as reported figures).
  • Data centers, power and related infrastructure: estimated ~$5 trillion of investment needed by 2030.
• Fiscal stimulus example (US): “One big bill” adds ~$375 billion (≈1% of US GDP), frontloaded.
• Jobs: ~1.2 billion young people entering the workforce over the next decade.
• Fiscal rules adoption:

  • 55% of emerging market & developing economies have fiscal rules today (vs. ~10% in early 2000s).

  • ~90% of advanced economies have fiscal rules.

Concrete recommendations and actionable items

For companies and investors

• Prioritize productivity-enhancing capex (AI, digital infrastructure, data centers); plan multi-year buildouts and power/data needs.
• Apply rigorous investment appraisal and require higher ROI thresholds given higher effective interest costs.
• Diversify supply chains and export destinations; favor countries joining trade agreements or improving domestic trade logistics.
• Monitor country fiscal credibility (deficits, debt trajectory, debt currency/maturity) before greenlighting long-horizon projects.
• Prepare for K-shaped demand: asset-price/wealth gains may not translate into broad consumer demand if hiring stalls.

For governments and public-sector managers

• Design fiscal rules carefully (form, enforcement, complementary MTFF) and introduce them in good times.
• Create/strengthen fiscal councils and transparency mechanisms to lock in credibility.
• Prioritize revenue mobilization (tax reform) to avoid excessive spending cuts that undercut growth; build fiscal buffers.
• Target public investment toward human capital, digital and physical infrastructure that crowd in private investment.
• Reduce internal trade costs (borders, logistics) to capture gains from regional trade reorientation.
• Use trade agreements strategically to diversify export markets and attract FDI.

For aid agencies and multilateral actors

• Rethink financing approaches for fragile/conflict-affected states; concessional flows are down — the mix of support and political-economy integration matters.
• Consider coherent mixes of political, security, and economic support to enable investment-driven recoveries.

Country examples and practical signals

• India: cited as a potential 2026 “winner” — manageable external position, strong capital flows, recent labor reform, trade deals aiding diversification.
• Vietnam: benefiting from supply-chain reallocation away from China; strong FDI and export integration.
• Nigeria & Ethiopia: examples where exchange-rate reforms helped stabilize macro positions.
• Fragile & conflict-affected states: majority have seen per-capita declines since 2019 — need security and political stabilization before economic gains are deliverable.

Risks and indicators to monitor (KPIs for country risk and opportunity assessment)

• Fiscal indicators: debt-to-GDP, primary balance, interest payments relative to revenue, fiscal deficit trajectory, currency and maturity composition of debt, debt service ratios.
• Financing indicators: market access conditions, availability of concessional finance, spreads and term premium, maturity profile, rollover risk.
• External/FX metrics: current account, FX reserves, currency mismatch in public and private balance sheets.
• Trade metrics: export concentration by partner, share of exports in regional blocs, services vs. goods trade trends.
• Labor & social metrics: unemployment (especially youth), labor force entrants, job creation rates, labor participation.
• Investment KPIs: capex growth rates, data-center power demand forecasts, public vs. private investment shares, ROI on public projects.

Narrative on trade and fragmentation — operational implications

• Trade is fragmenting into regional/bilateral blocs, not collapsing. Operational implications for businesses:
  • Reassess market-entry strategies: prioritize regional hubs and trade-agreement partners.
  • Invest in local/regional logistics and border efficiency to reduce internal trade costs.
  • Anticipate industrial policies that may favor domestic champions or impose localization requirements.

Debt and financing outlook — strategic implications

• Concessional finance is down; market financing is costlier.
  • Public projects must pass stricter cost-benefit tests; prioritize investments with clear revenue or efficiency gains.
  • Countries should accelerate revenue mobilization (tax administration, base broadening) to avoid choking off investment.
  • Some countries face solvency risks and may need restructuring — investors should stress-test exposures for rollover and currency risk.
  • Monitor for “fiscal dominance”: high public debt interacting with domestic financial markets can erode monetary policy space.

Bottom-line guidance for business leaders and policy-makers

• Expect a lower-growth, more fragmented global market where scale and productivity gains (AI/digital) matter more.
• For market entry and capital allocation: perform country-level selection (India, Vietnam as examples), underwrite projects with clear returns, and monitor fiscal/financial indicators closely.
• For public managers: pair fiscal rules with institutional supports (MTFFs, fiscal councils), focus on revenue mobilization and high-return public investment, and ease internal trade frictions to attract private capital.

Sources / presenters (as named in the session)

• Ahan (Ihan) Kos — Director, Global Prospects Division & Deputy Chief Economist, World Bank (author of the World Bank Global Economic Prospects report presented)
• Joyce Chang — Managing Director and Chair of Global Research, JPMorgan
• Abbe (Abby) Salassi — Director, Africa Department, IMF
• Liliana Rojas-Suarez — Senior Fellow; Director, Latin America Initiative, Center for Global Development (CGD)
• Moderator/Host: Masud (introduced the panel and session at CGD)