Executive Summary
- Global economic growth is projected to slow in 2025 and 2026, reaching 3.1 percent and 2.9 percent respectively, following a stronger-than-expected 3.3 percent in 2024.
- The US economy has shown more resilience than anticipated, though growth is expected to moderate by 2026, with optimism surrounding artificial intelligence providing a counterbalance to policy effects.
- Other advanced economies like Japan (temporary fiscal boost) and the UK (muted growth) present varied outlooks, while emerging markets like India and China are projected to maintain leading positions despite challenges.
The Story So Far
- The projected slowdown in global economic growth for 2025 and 2026, following a stronger 2024, is primarily driven by rising trade tensions and significant uncertainty regarding US economic policy. These factors are expected to temper private domestic demand across advanced economies and emerging markets, even as optimism surrounding artificial intelligence offers some counterbalance to the overall economic headwinds.
Why This Matters
- The projected slowdown in global economic growth for 2025 and 2026, following a stronger 2024, signals a more fragile outlook for businesses and consumers worldwide. This moderation is primarily driven by rising trade tensions and significant uncertainty in US economic policy, which could impact global supply chains and investment decisions. Consequently, while some emerging markets are expected to maintain resilience, advanced economies face varied headwinds, potentially leading to subdued demand and tighter fiscal conditions in key regions.
Who Thinks What?
- Karen Dynan of the Peterson Institute for International Economics (PIIE) projects that global economic growth will slow in 2025 and 2026, following a stronger-than-expected performance in 2024, amidst rising trade tensions and US policy uncertainty.
- Advanced economies, such as the United States, show resilient momentum with AI optimism boosting demand, though growth is still expected to moderate; other advanced economies like the euro area, Japan, and the United Kingdom face varied challenges including fiscal restraint and weak productivity.
- Emerging-market economies like India and China are projected to maintain leading positions despite existing tariff pressures, while Brazil anticipates slower growth due to tight monetary policy, and Russia’s economy remains weak from low oil prices and sanctions.
Global economic growth is projected to slow in 2025 and 2026, following a stronger-than-expected performance this year, according to analysis by Karen Dynan of the Peterson Institute for International Economics (PIIE). Real global GDP is forecast to increase by 3.1 percent in 2025 and 2.9 percent in 2026, a decrease from the 3.3 percent recorded in 2024. This moderation occurs amidst rising trade tensions and significant uncertainty regarding US economic policy, though optimism surrounding artificial intelligence (AI) has offered some counterbalance.
Advanced Economies Face Headwinds
In the United States, economic momentum has proven more resilient than initially anticipated, despite expectations that substantial new tariffs and other policy shifts would heavily impact private domestic demand. US GDP growth is now projected to moderate to 1.7 percent in 2026, down from 1.9 percent in 2025 and 2.8 percent in 2024, with AI optimism boosting demand as policy effects unfold gradually.
The economic landscape in the euro area remains varied. Japan is expected to experience a temporary uplift in growth in 2026 due to fiscal stimulus under new leadership, but this boost is likely to diminish as inflation rises and policies tighten. The United Kingdom continues to contend with muted growth, attributed to fiscal restraint, a strong pound, and weak productivity.
Emerging Markets Show Resilience and Challenges
Among large emerging-market economies, India and China are projected to maintain their leading positions, even under existing tariff pressures. Conversely, Brazil is anticipated to face slower growth as its tight monetary policy continues to constrain demand. Russia’s economy remains weak, primarily hampered by low oil prices and ongoing financial sanctions.
Outlook Remains Fragile
While the global economy has shown resilience this year, the outlook for 2025 and 2026 is described as fragile, with individual economies navigating distinct headwinds and risks. The interplay of trade policies, technological advancements, and domestic fiscal and monetary decisions will continue to shape regional and global economic trajectories.
