Economics Update November 2025 - 2026: Weaker global growth momentum, but no slump

In 2025, the global economy proved to be more robust than might have been expected after the tariff shock of “Liberation Day” on April 2. Even though the tariff regime was not implemented as announced by US President Donald Trump on the boards in the Rose Garden of the White House in Washington, the average US import tariff rose from less than 3 percent to well over 10 percent. The effects of such a drastic tariff increase, as predicted by trade theory, are now likely to become more noticeable over time and weigh on global growth momentum in 2026. Rising import prices in the US, pressure on the prices of foreign exporters, a reduction in real trade volume and, ultimately, global real income losses are to be expected.

Nevertheless, we do not believe that this will lead to a global recession, as there are a number of factors supporting the economy: In most countries, inflation is under control and within the target range set by central banks. This opens up scope for a more expansionary monetary policy. Fiscal policy is also likely to provide positive impetus in many cases, even if the overall very high level of (government) debt gives cause for concern.

The sustained high and even rising level of investment in artificial intelligence (AI) is also providing support. In the US, this has already made a noticeable contribution to maintaining solid growth rates in 2025 and remains a key driver of investment growth there in particular.

Macroeconomic demand in the United States will also be driven by tax refunds for US citizens in the first half of the year, which are expected to total more than USD 100 billion. These will also counteract the cooling of the labor market. Risks, on the other hand, stem from inflationary developments. We consider the chances of inflation approaching the US Federal Reserve's (Fed) target of 2 percent on its own to be limited in the context of a stable economy. Much will depend on how the Fed deals with this environment: if it makes its monetary policy more restrictive than expected, this could have a dampening effect on aggregate demand.

Europe could fall further behind

In Europe, the decline in inflation to 2 percent and the European Central Bank's (ECB) interest rate cuts to a neutral level are positive factors. Higher spending on defense and infrastructure measures are also having a positive effect. However, a sustainable upturn still requires a fundamental realignment of European economic policy, which has hardly been seen so far. There is therefore a risk that Europe will continue to lag behind in global competition and that potential growth will remain low.

In China, the severe real estate market crisis has still not been overcome, and the hoped-for stronger fiscal stimulus for domestic demand remains uncertain even after the recent plenary session of the Communist Party's Central Committee. Slower growth momentum compared to 2025 is therefore the most likely scenario for 2026.

Emerging markets are suffering from the consequences of Trump's tariff policy and weak demand from China. However, moderate inflation and stable currencies in most emerging economies continue to offer considerable scope for central banks to cut interest rates. We view the significant improvement in financing conditions as positive and see the possibility of a new economic upturn emerging.

Overall, we estimate that the global economy will grow by 2.5 percent in 2026, which would be 0.3 percentage points less than in 2025. A significant slump is therefore not our baseline scenario.