The global economy has continued to defy slowdown fears, maintaining near-trend growth despite tariffs, inflation divergence and rising public debt, according to a new Citi Research outlook.

Global GDP growth is forecast at 2.7 per cent in 2026 and 2.8 per cent in 2027. While tariff pressures and fiscal risks persist, recession risks remain low.

The global economy has sustained resilience, with growth holding close to a 3 per cent trend for a fourth consecutive year despite repeated shocks. Analysts say flexible supply chains, firm labour markets and steady consumer spending have helped the world economy absorb challenges that previously pointed to a sharper slowdown.

“We’ve consistently underestimated the resilience of the global economy. Even looking back, there were good reasons to expect an appreciable slowdown in growth, but the supply side of the economy has shown flexibility and a capacity to respond rapidly and smoothly to shocks, even sizable ones, while global labour markets have remained firm, supporting consumer spending,” the research said.

Developed-market growth is projected to ease modestly from 1.7 per cent to 1.6 per cent, while emerging-market growth is forecast to slow from 4.2 per cent to 4 per cent. Growth is seen improving in South Korea, Australia, Sweden and Poland, while remaining subdued in Germany and Mexico and softening in India, China, Singapore, Spain and Brazil.

Both manufacturing and services purchasing managers’ indexes (PMI) remain in the upper end of recent ranges, signalling solid momentum as the global economy enters 2026.

Inflation has remained broadly contained, with headline inflation hovering around 2 per cent and core inflation near 2.5 per cent. However, divergence has widened between the US and China. The US continues to face above-target inflation due to tariffs, constraining the Federal Reserve’s scope for rate cuts, while China struggles with persistently weak inflation amid soft private demand.

Trade policy remains a key theme. US tariff rates have climbed to around 15 per cent, up from 2.5 per cent at the start of the current administration and the highest level in more than 80 years. Despite their scale, the economic impact has been less severe than expected, partly due to front-loaded spending by households and firms. Less than half of the tariffs are estimated to have been passed through to consumers so far, with much of the burden absorbed by companies, particularly smaller firms.

Tariffs have also reshaped global trade flows, accelerating US–China decoupling. As China has lost US market share, economies such as Taiwan, Vietnam, Mexico and Thailand have gained, although some of this reflects re-exporting. China’s exports have remained strong overall in 2025, supported by demand from ASEAN and the European Union, but sustainability remains an open question for 2026.

Five key risks for 2026 are a larger-than-expected tariff drag on growth, a sharper deterioration in the US labour market, potential setbacks in AI investment and valuations, weak private demand in China, and elevated public debt levels across major economies. Public debt exceeds or approaches 100 per cent of GDP in several developed markets, limiting fiscal flexibility.

On commodities, oil prices are expected to find support around $60 per barrel in 2026. In foreign exchange, a cyclical recovery in the USD is expected in early 2026, with EUR to USD projected to move toward 1.10.

Overall, the combination of resilient growth and restrained inflation points to a continued ‘Goldilocks’ environment. While challenges remain, the balance of risks suggests the global economy is likely to extend its run of stability into 2026 rather than face a disruptive downturn.

The global economy has continued to defy slowdown fears, sustaining near-trend growth despite tariffs, inflation divergence and high public debt.
Global GDP is forecast to grow 2.7 per cent in 2026 and 2.8 per cent in 2027.
Resilient labour markets and manageable tariff impacts support a ‘Goldilocks’ outlook, though risks from tariffs, AI, China demand and fiscal pressures remain.

Fibre2Fashion News Desk (HU)