Economic Outlook 2026 –Time for a new stress test

In 2025, the world surprised by its ability to absorb shocks. After brief concerns that Trump’s tariff threats would cause stagflation, the markets switched back into “Goldilocks” mode. For 2026, the basic ingredients are growth at its potential rate, a little disinflation and a policy mix combining monetary neutrality and fiscal stimulus (in the US, Germany and Japan). However, a year marked by a new chairman at the Fed and US mid-term elections is unlikely to be a wholly calm one. Numerous imbalances could spoil the party, from the fragmentation of world trade to the mounting risks to financial stability, including rising debt service costs and extreme AI valuations. Added to this are myriad geopolitical uncertainties. And stimulating an economy that is doing well (or not too badly) surely runs the risk of stoking inflation. The US-China rivalry is more heated than ever, notwithstanding the current truce on tariffs. Europe is the most vulnerable of the major regions because of its technological and military inferiority and exposure to the Chinese industrial steamroller. The main hope lies in a reawakening of Germany, the only eurozone country with the fiscal space to spearhead an investment revival.