{"id":261052,"date":"2026-01-01T04:35:18","date_gmt":"2026-01-01T04:35:18","guid":{"rendered":"https:\/\/www.europesays.com\/ie\/261052\/"},"modified":"2026-01-01T04:35:18","modified_gmt":"2026-01-01T04:35:18","slug":"six-economic-flashpoints-to-watch-out-for-in-2026-the-irish-times","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/ie\/261052\/","title":{"rendered":"Six economic flashpoints to watch out for in 2026 \u2013 The Irish Times"},"content":{"rendered":"

The global economy showed remarkable resilience in 2025 despite significant trade tensions and policy uncertainty related to US tariffs<\/a>.<\/p>\n

The impact of Washington\u2019s protectionist pivot has still to fully play out while the US\u2019s mammoth bet on artificial intelligence<\/a> (AI) has divided commentators. <\/p>\n

We\u2019ve picked six economic pressure points to watch out for in 2026. <\/p>\n

The US economy<\/p>\n

The trajectory of the US economy is perhaps the most watched trend in the global economy right now. <\/p>\n

That\u2019s because of the contradictory nature of Donald Trump<\/a>\u2019s economic agenda. He is trying to address an \u201caffordability\u201d crisis while imposing tariffs on key imports.<\/p>\n

Tariffs should in theory elevate prices at expense of domestic consumers and businesses. Increased costs for businesses should also dampen hiring. <\/p>\n

There is evidence of both these trends in the US economy, but they\u2019re not as amplified as many critics of the US president had forecast.<\/p>\n

\"IsIs the US economy proving more resilient than many predicted? Photograph: Mark Abramson\/The New York Times <\/p>\n

US growth driven by consumer spending and spending on AI also remains relatively strong.<\/p>\n

But is this the lag before the storm (tariffs take time to percolate through the system) or is the US economy proving more resilient than many predicted? The year 2026 will perhaps answer this question.<\/p>\n

Federal Reserve chair Jerome Powell<\/a> describes the US economy as \u201cvery unusual\u201d with policymakers facing a rare combination of tariff-driven goods inflation and a labour market that might be weaker than official data suggest. <\/p>\n

[\u00a0US economy grew at 4.3% rate in third quarterOpens in new window<\/a>\u00a0]<\/p>\n

An added complication relates to the recent federal shutdown which has backed up the flow of data relating to prices and the labour market. <\/p>\n

The Fed cut interest rates for the third consecutive meeting in December despite the elevated level of US inflation, but the move was framed as defensive to support the labour market. Powell says the official payroll figures \u2013 which have slowed sharply since the summer \u2013 may be overstating jobs growth by roughly 60,000 a month.<\/p>\n

Last time the US Bureau of Labor Statistics (BLS) revised down its jobs growth data, Trump fired the chief statistician and he has had it in for Powell since to coming to office. Trump\u2019s man on the board of the Fed, Stephen Miran, pushed for a larger half point cut in December.<\/p>\n

Even the soothsaying bond markets are giving out mixed signals. The yield on 10-year US bonds \u2013 in effect the US government\u2019s borrowing costs \u2013 is rising, not what you would expect when the Fed is cutting rates.<\/p>\n

This could mean several things: investors are worried about US debt levels; they are worried the elevated rate of inflation; or conversely they believe the US economy is doing better than expected and therefore the Fed won\u2019t cut rates to the same extent as previously thought.<\/p>\n

Many analysts complain they\u2019re \u201cflying blind\u201d when it comes to the US economy.<\/p>\n

\"BearishBearish investors have been talking about \u201cstretched valuations\u201d of AI firms. Photograph: Andriy Onufriyenko\/Getty The AI bubble<\/p>\n

Not unrelated to the health of the US economy is the potential for a blowout on US <\/b>stock markets linked to the current glut of investment in artificial intelligence (AI). US firms, led by the so-called hyperscalers (Alphabet<\/a>, Amazon<\/a>, Meta<\/a>, Microsoft<\/a>), have invested $350 billion (\u20ac297 billion) in AI and AI-related infrastructure in the past year alone and are forecast to spend $400 billion in 2026.<\/p>\n

Bearish investors have been talking about \u201cstretched valuations\u201d for two years, but the bull run on markets continued apace in 2025 with indices, including the bellwether S&P 500, reaching record highs. <\/p>\n

The S&P surge is, however, being increasingly driven by a small number of large stocks: today just eight stocks \u2013 the so-called Magnificent 7 of Alphabet, Amazon, Apple<\/a>, Meta, Microsoft, Nvidia<\/a> and Tesla<\/a>, plus Broadcom \u2013 account for almost 40 per cent of the value of the index. This level of concentration is significantly higher than usual, and has only been seen once before, at the peak of the dotcom boom in 2000.<\/p>\n

\"InvestorsInvestors could seek out more attractive valuations and earnings growth. Photograph: Michael Nagle\/Bloomberg Will 2026 be the year when things go bang?<\/p>\n

Barry Glavin, head of equities at Amundi, Europe\u2019s largest asset manager, says the market is trying gauge how attractive the return on this huge AI investment will be.<\/p>\n

\u201cThese companies \u2013 until recently \u2013 have been able to grow earnings without having to invest a huge amount of capital.<\/p>\n

\u201cBut now \u2013 all of sudden \u2013 they\u2019ve become really capital intensive and it\u2019s not clear what the return on this capex [capital expenditure] is going to be,\u201d he says.<\/p>\n

The timeline to delivery is unclear because of energy bottlenecks in the US while the commercial model is also uncertain. \u201cWhat are clients going to pay to access this processing power?\u201d he says.<\/p>\n

\u201cThere are big unknowns for a spend of this magnitude,\u201d he says. <\/p>\n

Glavin also notes these companies are going to have to depreciate all this capital expenditure \u2013 and that\u2019s going to be a drag on future profitability.<\/p>\n

\u201cWhat we do know is that businesses that deploy AI will get huge productivity gains,\u201d he says. <\/p>\n

\u201cAt the moment it\u2019s not very expensive to buy and integrate … but I\u2019d prefer to be an investor in users of AI rather than the providers of processing power.<\/p>\n

\u201cThe roll-out of telco infrastructures in the late 1990s and early 2000s wasn\u2019t very profitable for the people who provided the capital.<\/p>\n

\u201cThe same for canals, the same for the railways … whereas the users of these infrastructures have been massive beneficiaries.\u201d<\/p>\n

Despite the unknowns, he says his firm does not see a \u201chuge bubble bursting\u201d in 2026. Instead he believes there will be a rotation out of the concentrated, high-value part of the market into other parts that offer more attractive valuations and earnings growth.<\/p>\n

Ireland\u2019s tax windfall<\/p>\n

As recently as 2018, Ireland\u2019s annual haul from corporation tax was \u20ac10 billion. The exchequer collected \u20ac10 billion in November alone in 2025.<\/p>\n

Is this a bubble that will one day burst? Perhaps but the short-term outlook remains favourable. <\/p>\n

The Department of Finance<\/a> is expecting receipts to climb again in 2026, to a record \u20ac34 billion. <\/p>\n

\"19\/11\/2017The Department of Finance is expecting receipts to climb again in 2026. Photograph: Nick Bradshaw <\/p>\n

That may be an underestimate. The Irish Fiscal Advisory Council<\/a> (IFAC) <\/b>is predicting receipts will rise by a further \u20ac5 billion from 2026 onwards as additional revenue from the new minimum tax rate of 15 per cent flows into the exchequer.<\/p>\n

But this tax bonanza comes at the expense of huge concentration risk with just 10 firms, including Apple, responsible for 60 per cent of receipts.<\/p>\n

This concentration is also evident in our exports with ingredients for Eli Lilly<\/a>\u2019s two bestselling weight-loss drugs \u2013 Mounjaro and Zepbound \u2013 driving a surge in Irish exports and gross domestic product (GDP) in the first part of 2025.<\/p>\n

Globally, the financial zeitgeist is debt \u2013 dangerously high levels of it \u2013 but Ireland sits in a tax-rich ivory tower insulated from the trend. <\/p>\n

And the sectors responsible for the country\u2019s tax gold-rush remain \u2013 for the moment \u2013 outside Trump\u2019s tariff dragnet.<\/p>\n

But there\u2019s a moral hazard to have this tax largesse, spending has ballooned. Between 2019 and 2024, it rose from \u20ac67 billion to \u20ac104 billion, an increase of \u20ac36.7 billion or 54 per cent, equating to an average annual growth rate of 9.4 per cent.<\/p>\n

[\u00a0The Irish Times view on the IFAC report: budgeting like there is no tomorrowOpens in new window<\/a>\u00a0]<\/p>\n

IFAC chairman Seamus Coffey has accused the Government of spending like \u201cthere\u2019s no tomorrow\u201d. <\/p>\n

To staunch the bleeding, Minister for Finance Simon Harris has promised, as part of new medium-term spending plan, to keep annual expenditure increases \u2013 over the next five years \u2013 to an average of 6 per cent.<\/p>\n

Irish governments have a poor record when it comes to keeping spending in check.<\/p>\n

Budgets are drawn up and delivered every October only to be torpedoed by spending overruns and supplementary estimates the following year. Spending for 2025 is already \u20ac4 billion beyond what was outlined in the budget last year. IFAC calls it \u201cfiscal gimmickry\u201d.<\/p>\n

Four years ago the Government adopted, then quickly abandoned, a 5 per cent spending rule. Will it adhere to the new one?<\/p>\n

\"RecruitsRecruits rest after drills at a training ground in the Zaporizhzhia region, Ukraine. Photograph: Andriy Andriyenko\/AP Ukraine war<\/p>\n

The fate of the Donbas region in eastern Ukraine<\/a>, Kyiv\u2019s frontline against Russia<\/a>, might be discussed in purely political terms, but the economic fallout could be just as seismic.<\/p>\n

Russian leader Vladimir Putin wants any peace deal to include Moscow getting full control of the Donbas. For Ukraine, this would be a harsh pill to swallow as it would in effect reward Russia\u2019s military aggression.<\/p>\n

The dithering position of European leaders on everything from Trump to seized Russian assets doesn\u2019t bode well. <\/p>\n

The coal-rich, heavily industrialised Donbas region is crucial to Ukraine\u2019s economy. It is rich in critical minerals such as lithium (important for batteries), tantalum, caesium and strontium, which are essential for the green energy and defence sectors.<\/p>\n

A second factor is the region\u2019s strategic value. Its port of Mariupol provides Black Sea access.<\/p>\n

The London-based Centre for Economic and Business Research estimates that the Donbas region accounted for almost 16 per cent of Ukraine\u2019s GDP (gross domestic product) before 2014.<\/p>\n

Ukraine is estimated to have lost more than \u20ac80 billion since Moscow\u2019s occupation of the territory.<\/p>\n

How all this plays out could have a big impact on global commodity prices, global supply chains and ultimately inflation. Russia\u2019s initial invasion triggered an energy-price shock that is still percolating through the global economy.<\/p>\n

\u201cControl of Donbas gives Russia a massive economic and military advantage,\u201d Elina Beketova, a fellow at the Centre for European Policy Analysis, told the UK\u2019s Independent recently. \u201cIt\u2019s not just resources, it\u2019s a fortress line Ukraine has built up for years. If it falls, Russia can push deeper West unhindered,\u201d she said.<\/p>\n

The health of the Russian economy is also a variable in the equation. While western sanctions appear to have inflicted only limited damage on Russia\u2019s energy-focused economy, the latest statistics show the economy there is cooling.<\/p>\n

The initial economic boost caused by surging military spending appears to be over and activity has slowed markedly. An economic slump might force Putin\u2019s hand.<\/p>\n

\"FranceFrance is dogged by low growth and high debt. Photograph: iStock Another sovereign debt crisis?<\/p>\n

Europe could soon be engulfed in another sovereign debt crisis, unless it adopts \u201cbold\u201d policy responses, the International Monetary Fund<\/a> (IMF) warned recently.<\/p>\n

The Washington-based organisation said public spending pressures in several European countries had put debt on a potentially \u201cexplosive path\u201d.<\/p>\n

\u201cElevated public debt, an increasingly difficult financing environment and new spending pressures are creating a fundamental sustainability challenge at a time when countries face political polarisation, dissatisfaction with cost of living and reform fatigue,\u201d it said.<\/p>\n

US economist Nouriel Roubini claims the global economy has become so saturated with debt that it now resembles Argentina, a country that has defaulted four times since the 1980s. <\/p>\n

France, dogged by low growth and high debt (which amplify each other) and a sequence of short-lived, unstable governments, has taken over Italy\u2019s mantle as the sick man of Europe.<\/p>\n

[\u00a0Debt in several EU countries is on potentially explosive path, IMF warnsOpens in new window<\/a>\u00a0]<\/p>\n

The UK isn\u2019t far behind. Both France and the UK have big budgetary gaps and face populist backlashes against proposed reforms.<\/p>\n

\u201cThe next financial crisis is definitely coming,\u201d German chancellor Friedrich Merz says. \u201cIt will be a sovereign debt crisis. We don\u2019t know when it will come. We don\u2019t know from where it will come from, but it will come.\u201d<\/p>\n

Merz warns that several European Union<\/a> states, including France, Italy and Spain, <\/b>now have debts that were bigger than the size of their annual economic output.<\/p>\n

The lesson of the last 10 years is to expect the unexpected. Brexit,<\/a> the pandemic, Russia\u2019s invasion of Ukraine and the ensuing energy price shock were all unanticipated events. <\/p>\n

According to historian Adam Tooze, we are living in the era of the polycrisis, where multiple, overlapping and compounding crises are challenging the way we live. The year 2026 promises more of the same.<\/p>\n","protected":false},"excerpt":{"rendered":"The global economy showed remarkable resilience in 2025 despite significant trade tensions and policy uncertainty related to US…\n","protected":false},"author":2,"featured_media":261053,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[73],"tags":[289,6504,79,22779,356,179,18,1465,2219,19,16243,17,38623,5129,550,2264,1411],"class_list":{"0":"post-261052","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-artificial-intelligence","9":"tag-brexit","10":"tag-business","11":"tag-department-of-finance","12":"tag-donald-trump","13":"tag-economy","14":"tag-eire","15":"tag-eli-lilly","16":"tag-european-union","17":"tag-ie","18":"tag-international-monetary-fund","19":"tag-ireland","20":"tag-irish-fiscal-advisory-council","21":"tag-jerome-powell","22":"tag-russia","23":"tag-ukraine-crisis","24":"tag-us-tariffs"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ie\/115817986396843876","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/261052","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=261052"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/261052\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/261053"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=261052"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=261052"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=261052"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}