As the world prepares to cross the threshold into 2026, the global economic map reveals a series of nations bruised by tariffs, concerns about a possible AI bust and tentative hopes of a turnaround. We look at the prospects for some of the leading economies in the year ahead.<\/p>\n
Germany is shuffling into 2026 with the world-weary air of a mouse that has been told so many times the cheese is around the next corner that it has ceased to believe in the existence of cheese.<\/p>\n
Back in the early summer, it was still possible to muster something almost resembling optimism if you tried hard enough. The DAX was forging ahead with its hot streak as one of the world\u2019s strongest big stock indices.<\/p>\n
In Friedrich Merz, the new Christian Democratic Union chancellor, the country had its first leader with meaningful business experience since Ludwig Erhard in the 1960s. Even before taking office, he contrived to open the fiscal floodgates with a \u20ac500 billion slug of borrowing for infrastructure and a mechanism that permits theoretically unlimited defence spending.<\/p>\n
Yet business sentiment has effectively stagnated since then, more or less trundling along at the same nadir it had reached in 2024, according to monthly polling of executives by the Ifo economic research institute in Munich.<\/p>\n
\u2022 Stock picks: who will be the big winners in 2026?<\/b><\/a><\/p>\n After two years of recession and another of standstill, growth is at least expected to return in 2026, but most forecasts suggest it will be a meagre fraction of a percentage point.<\/p>\n \u201cCompanies are taking a sober and concerned view of economic development,\u201d said Klaus Wohlrabe, Ifo\u2019s head of surveys. \u201cThe euphoria from the start of the year has already faded again.\u201d<\/p>\n This has much to do with structural drags on the economy that are already grimly familiar: a tight labour market, eye-wateringly expensive energy, overweening bureaucracy, low investment, weak demand for Germany\u2019s exports and geopolitical instability.<\/p>\n Increasingly, though, companies and economists are troubled by what they see as political deadlock and an unwillingness to grasp the country\u2019s many nettles.<\/p>\n A pledge to reform the welfare state has fizzled out with nugatory savings on unemployment benefits and a public pensions system that will continue to eat an ever greater share of output after Merz\u2019s Social Democratic coalition partner saw off a very modest attempt to rein it in.<\/p>\n The debt-funded infrastructure splurge has largely turned out to be an accounting wheeze for regional governments to pursue investments they were already planning.<\/p>\n Veronika Grimm, one of the \u201cFive Sages\u201d who advise the government on economic strategy, recently warned that at this rate Germany would end up spending its entire tax take on welfare, debt interest and the armed forces by 2029.<\/p>\n \u201cThe government is pursuing a policy that is manoeuvring this country into the abyss at the cost of the little people,\u201d Grimm told the Augsburger Allgemeine newspaper.<\/p>\n United States<\/p>\n The biggest question for the American economy for 2026 seems to be: Is there an artificial intelligence bubble? And if there is, when and how will it burst?<\/p>\n The US has gone all-in on AI, with huge investments in data centre infrastructure helping to boost GDP.<\/p>\n \u2022 The best shares to buy in 2026<\/b><\/a><\/p>\n In the first half of the year, AI-related capital expenditures contributed 1.1 per cent to GDP growth, outpacing the US consumer as a contributing factor.<\/p>\n Scott Bessent, the Treasury secretary, has said he expects the US will end the year with 3 per cent GDP growth, up from 2.8 per cent last year.<\/p>\n Optimism around AI has also propelled US stocks to record highs. The S&P 500 index of America\u2019s biggest listed companies is up 18 per cent so far this year, although this is lower than the past two years\u2019 returns of over 20 per cent.<\/p>\n The impact of President Trump\u2019s sweeping tariffs<\/a> has been less severe than economists had feared, as many businesses have been able to reorganise their supply chains to help mitigate the effects, and consumers, particularly in the highest-earning brackets, have been able to absorb higher costs.<\/p>\n However, economists are worried about the pressure on lower and middle-income consumers as jobs growth has slowed and inflation has remained persistent. Many analysts now say the US has a \u201cK-shaped\u201d economy, where the highest earners continue to see their wealth increase while the poorest struggle.<\/p>\n \u2022 The business year in charts: golden highs and London lows<\/b><\/a><\/p>\n A divided Federal Reserve cut interest rates by a quarter percentage point in December for a third straight meeting, leaving rates at a three-year low of between 3.5 per cent and 3.75 per cent as the US central bank seeks to shore up a weakening labour market. But the Fed signalled borrowing costs were unlikely to drop further in the near term as it awaited more economic clarity.<\/p>\n Tariff uncertainty is rearing its head again, as the US Supreme Court is evaluating the legality<\/a> of the president\u2019s decision to impose sweeping tariffs. Aruling is expected in early 2026. If the court declares the tariffs unlawful, the Trump administration might need to return revenues received from the increased levies.<\/p>\n If they remain in place, some economists believe prices will continue to rise for imported goods at the start of the year, putting renewed pressure on consumers.<\/p>\n China<\/p>\n China enters 2026 still staggering forward<\/a>, bloodied but unbowed from its dramatic confrontation with President Trump\u2019s tariff wars<\/a>.<\/p>\n Growth remains strong at around 5 per cent up on last year \u2014 suspiciously strong, according to those sceptical of Chinese statistics. However, there has been no implosion of the economy, or pushback against President Xi\u2019s leadership.<\/p>\n Exports have continued to rise, and China\u2019s manufacturing machine looks more invincible by the day.<\/p>\n Even now, there is a sense of \u201cwhat was that all about?\u201d in Beijing. On \u201cLiberation Day\u201d in April Trump imposed total tariffs on China of 54 per cent, a figure which fluctuated wildly for months amid a spate of counter-measures, interim deals and tantrums on all sides, at one stage reaching 145 per cent.<\/p>\n A meeting between Trump and Xi in South Korea in October left the basic import tax on Chinese goods into America at 45 per cent, certainly resetting the terms of trade but not the disaster many in Beijing feared at one stage.<\/p>\n \u2022 What now after 2025\u2019s times of turmoil?<\/b><\/a><\/p>\n In the meantime, Beijing\u2019s attempts to prepare the ground for a shift away from reliance on the American consumer seemed to be working, as trade volumes held up overall. By November, its overall trade surplus had already risen to a record $1 trillion for the year.<\/p>\n How sustainable is this? That is the question that is increasingly dividing economists around the world.<\/p>\n Critics say that by displacing its trade surplus from the US to other countries, Beijing is merely triggering the same hostility to its mercantilist policies that had already riled Trump. If a full, worldwide trade war breaks out, China as the world\u2019s leading exporter is at most risk, at a time when non-manufacturing contributors to GDP such as real estate and retail are doing poorly.<\/p>\n