Global economic growth is projected to slow to 3.1% in 2026, according to the International Monetary Fund (IMF), as tariffs continue to influence trade and investment dynamics. While the immediate impact of tariffs has been less severe than initially anticipated, they persist as a significant factor in international economic relations, particularly between the United States and China. Other contributing factors to the global economic outlook include commodity prices, shipping route disruptions, and pending trade agreements and legal rulings.
Global Economic Projections
The International Monetary Fund (IMF) forecasts a global economic growth rate of 3.1% in 2026, a decrease from its earlier projection of 3.3%. This represents a reduction from the pre-COVID-19 average growth rate of 3.7%. Kristalina Georgieva, head of the IMF, noted that current growth is insufficient to meet global aspirations for improved living standards. Some other economic forecasts for 2026 indicate potentially lower growth rates than those provided by the IMF.
Tariffs and Their Impact
Former U.S. President Trump has stated that tariffs contribute to job creation, wage increases, and economic growth in the United States. However, these assertions have been met with various economic analyses. Tariffs have altered the global economic landscape and are expected to continue influencing it through 2026.
Maurice Obstfeld, a former chief economist at the IMF and a senior fellow at the Peterson Institute for International Economics, observed that the overall impact of tariffs on the global economy has been less severe than it could have been. He attributed this to other countries largely refraining from escalating retaliatory measures against the United States. Obstfeld also noted that China's response led to a de-escalation by the U.S., which averted a broader trade conflict.
Despite these factors, the United States and China, the world's two largest economies, maintain more tariffs and trade restrictions against each other than existed prior to 2017. These measures have increased costs for businesses and contributed to economic uncertainty, affecting long-term planning and investment. Obstfeld indicated that these frictions and uncertainties accrue over time, potentially leading to efficiency losses.
Mitigating Factors and Trade Activity
Several factors have partially mitigated the negative effects of tariffs, including:
- Lower interest rates
- A decline in the value of the U.S. dollar
- Businesses adapting their strategies
- Numerous tariff exemptions
These mitigating factors may contribute to the UN trade agency UNCTAD's forecast of a 7% increase in global trade value last year, reaching over $35 trillion (£26 trillion). Obstfeld highlighted that while tariff exemptions reduce the practical application of tariffs, they also introduce complexity regarding their procurement. Countries such as the UK, South Korea, and Japan have negotiated trade agreements with the U.S. government, and other nations may seek similar agreements in 2026.
United States Economic Performance and Inflation
Between July and September, the U.S. economy expanded by 4.3%, marking its highest annual growth in two years. Aditya Bhave, a senior economist at Bank of America, described the U.S. economy as resilient. He estimates that tariffs have contributed an additional 0.3% to 0.5% to U.S. inflation, which was 2.7% in November. The full impact of tariffs on inflation may still be developing. The U.S. economy, driven significantly by consumer spending, accounts for 26% of the global economy.
Cost of living pressures persist in various global regions. Eurozone inflation has stabilized at 2.1%. The UK's inflation rate is 3.2%, and the U.S. rate is 2.7%, both of which remain above their respective central banks' 2% targets.
Other Global Economic Influences
Several other factors are expected to influence the global economy this year:
- Trade Agreements: The renegotiation of the US-Mexico-Canada Agreement (USMCA) and a pending vote by EU member states on ratifying a South American trade deal.
- Legal Rulings: A U.S. Supreme Court decision concerning the legality of existing tariffs.
- Oil Prices: Goldman Sachs forecasts an approximate 8% fall in benchmark Brent Crude prices this year, settling around $56 a barrel. This projection is based on strong production levels in the U.S. and Russia. U.S. intervention in Venezuela is not expected to immediately increase global oil supply.
- Shipping Routes: The potential resumption of global shipping through the Red Sea could further reduce oil prices. Shipping company Maersk reported navigating a container ship through the Red Sea in late December, marking the first such passage in nearly two years. Major shipping firms have largely avoided this route due to attacks by Houthi rebels in Yemen, linked to the conflict in Gaza, opting instead for the longer and more costly route around southern Africa. Maersk stated that this was a "significant step forward," though a full return to the trans-Suez corridor is not yet scheduled.
US-China Trade Relations and European Market Dynamics
China, a major global manufacturing hub, remains a primary destination for container ships. Trade relations between Beijing and Washington continue to influence the global economy. Data indicates that the value of goods exchanged between the United States and China declined for the third consecutive year in 2025. President Xi Jinping's 2026 New Year message did not explicitly address trade tensions or domestic economic pressures but projected China's economy to reach $20 trillion and affirmed China's readiness "to work with all countries to advance world peace and development."
Discussions between the U.S. and China have focused on tariffs, U.S. access to rare earth metals, and Chinese access to high-end U.S. computer chips. James Zimmerman, Chair of the American Chamber of Commerce in China, noted that additional issues require resolution during an upcoming meeting between President Xi and former President Trump in April. Zimmerman indicated that while expectations for the meeting were low, sustained dialogue remained important.
Beijing's stated concerns include perceived restrictive environments for Chinese companies in certain markets, partly attributed to an "over emphasis on security concerns." U.S. concerns, conversely, include "how China manages its manufacturing output," with overcapacity being an issue affecting multiple economies. Zimmerman explained that while China demonstrates manufacturing strength in consumer goods, it needs to adjust production when demand falls to prevent a significant global oversupply.
In Europe, reliance on lower-cost Chinese imports is increasing, according to research from Dutch bank ING. The European Union is expected to implement measures regarding this trend in the coming months.