2026, Five Questions about the World Economy

Xinhua News Agency, Beijing, January 3rd Special Feature | Five Questions about the World Economy in 2026

Xinhua News Agency reporters Wei Ouyang, Maofeng Yu, and Sida Chen

As we enter 2026, the giant ship of the world economy is heading towards a new sea. The dark clouds of geopolitical conflicts, the barriers created by unilateralism and protectionism, the divergence of macroeconomic policies, and the impact of the new technological revolution, all weave together a complex picture. Amidst profound global changes and adjustments, can the world economy ultimately navigate through the fog of uncertainty? What challenges and opportunities lie ahead for global growth?

Question: What is the outlook for global economic growth

Major international economic institutions and organizations such as the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) generally predict that the growth rate of the world economy will slow down in 2026. Persistent uncertainties, more protectionist measures taken by some countries, and imbalances in labor supply may drag down growth. Fiscal vulnerabilities and potential financial market risks in some countries may also threaten market stability.

There are also views that the global economy is expected to remain stable in 2026. Nomura's Global Macro Research Team recently released a report stating that, supported by the investment boom driven by artificial intelligence and more expansionary monetary and fiscal policies, the global economy will show signs of stability or even accelerated growth in 2026, but growth across regions will still exhibit an uneven pattern.

As the world's largest economy, the outlook for the US economy is not promising. According to Rebecca Patterson, an economist at JPMorgan Chase and Bridgewater Associates, more and more structural pillars in the US economy are showing signs of instability, accumulating considerable risks.

In Asia, the substantial investment demand spurred by the green transformation and digital revolution is gradually emerging as a new growth driver. The Singapore Business Times recently published an article pointing out that Asia, as the world's most resilient growth engine, possesses outstanding advantages. Supported by robust domestic demand, reliable policy systems, and accelerated technological transformation, the region will continue to maintain a growth rate ahead of other regions.

Tom Arundo, CEO of the Kenya Manufacturers Association, believes that in 2026, the trend of regional integration in the global economic landscape may intensify, with South-South trade and investment flows becoming more vibrant. The role of the global South in driving world economic growth will continue to expand.

Second question: How has the global trade and supply chain landscape evolved

Recently, at the unveiling ceremony of the "Malaysian Character of the Year 2025", the character "税" (tax) was selected through public voting, reflecting the impact of the United States' abuse of tariffs on the global community. As the effects of the high tariff policy of the United States gradually emerge, new trade frictions may arise globally, which is expected to drag down the prospects of global investment and trade in 2026.

The World Trade Organization recently significantly lowered its growth forecast for global merchandise trade to 0.5% in 2026, far below the 2.4% expected for 2025. Economists from the WTO emphasized that trade restrictions and policy uncertainties are spreading to more economies and industries, posing a major downside risk.

The rise of protectionism coupled with intensified geopolitical tensions has forced more enterprises to re-examine their global supply chains and investment layouts. Some economies may accelerate the repatriation of industries, and the trend towards localization and regionalization of supply chains will become more prominent.

Professor Luiz Paulino of the State University of São Paulo, Brazil, pointed out that trade tensions have prompted some countries to shift production to regions that are politically deemed safer or closer to end markets, leading to the shortening and regionalization of supply chains. In the future, this policy orientation that prioritizes safety over efficiency will continue.

Third question: Is artificial intelligence a risk or an opportunity

According to data from the American consulting firm Gartner, global investment related to artificial intelligence (AI) is expected to exceed $2 trillion by 2026. Technological innovations represented by AI are profoundly changing the global economic landscape, providing new drivers for growth while also posing challenges of structural adjustment. How to balance innovation vitality and risk challenges will be a key issue for policymakers around the world to address in the new year.

Experts believe that in the short term, the AI boom may give rise to investment bubbles, exacerbate income inequality worldwide, and lead to a widening gap between the rich and the poor.

"The global economy is experiencing a 'K-shaped' divergence, with income and wealth disparities widening, and artificial intelligence (AI) may exacerbate this situation," said Rob Subbaraman, head of global macro research and co-head of global market research at Nomura. "AI may also lead to changes in the employment structure."

Experts believe that, in the long run, technological innovations represented by artificial intelligence will be a key force in enhancing labor productivity and spurring the emergence of new business forms. These innovations have significantly boosted productivity in sectors such as manufacturing, services, and agriculture, facilitated the transformation and upgrading of industrial structures, and given rise to new industries and employment opportunities.

In the view of Horst Röcher, Professor of Economics at the Frankfurt School of Finance and Management and Co-Chair Professor of the Sino-German Center, AI will be a widely applied technology in the coming decades, "covering almost all production processes".

Question 4: How do macroeconomic policies affect the market

In 2026, monetary policies in major developed economies are expected to become more divergent. The Federal Reserve may continue to loosen monetary policy; the European Central Bank's interest rate cut cycle is nearing its end, and it is expected to adopt a more cautious monetary policy; the Bank of Japan may continue to raise interest rates amid persistent upward pressure on inflation in the country.

Adjustments to US monetary policy often significantly affect global cross-border capital flows, asset pricing, and exchange rate stability. Against the backdrop of intensifying geopolitical conflicts and lingering global inflationary pressures, the Federal Reserve's interest rate cuts and balance sheet adjustments will introduce new uncertainties into the global economy and financial markets. This could lead to hot money flowing into emerging markets, fueling bubbles, and planting financial risks. For emerging economies, this signifies a more complex external environment, and policy trade-offs present greater challenges.

The fiscal policies of major economies also affect the market sentiment. Currently, many developed economies have high public debt, and long-term bond yields have risen sharply, reflecting investors' concerns about fiscal risks. The British magazine "The Economist" published an article stating that some governments rely on central banks to maintain low interest rates to reduce their debt burden, and the possibility of a crisis in the bond market is increasing.

Globally, although the US dollar remains the primary reserve currency and medium of exchange, concerns about the US dollar system are gradually intensifying among the international community. Many countries and regions have begun to reconsider their excessive dependence on the US dollar. Especially against the backdrop of political polarization in the United States, expanding fiscal deficits, and rising debt levels, some economies may accelerate the process of "de-dollarization".

Question 5: What is your view on China's economic prospects

In the new year, how China's economy will withstand the pressure brought by changes in the external environment and achieve its set growth targets has attracted widespread attention and expectation from the international community. Overseas observers believe that leveraging its institutional advantages, ultra-large market, comprehensive industrial system, and vigorous innovation vitality, China's economy not only provides solid support for its own high-quality development but will also continue to contribute certainty and stability to the world economy, becoming an important engine of global growth.

"Despite the challenges, China's economy will still demonstrate remarkable resilience," said Melissa K. Finnegan, the World Bank's chief economist for China. In 2026, China's macro policies and ongoing structural reforms will continue to yield positive results. In the long run, China's economic growth potential remains considerable.

The European website Modern Diplomacy states that 2026 marks the beginning of China's 14th Five-Year Plan. Facing external risks and challenges, China has prioritized the construction of a robust domestic market in its economic agenda, increased investment in technology sectors such as artificial intelligence, and deepened reforms to promote economic development driven by domestic demand.

Currently, new productive forces are accelerating the reshaping of China's economic growth pattern, becoming a key focus in driving high-quality development. A commentary on the website of Pakistan's Daily Times stated that China will promote high-quality development driven by innovation and advanced productive forces, with modern service industries, AI-related industries, and green transformation providing new growth momentum.

In December last year, Hainan Free Trade Port officially launched its island-wide customs sealing operation. This is a landmark measure for China to unswervingly expand high-level opening up and promote the construction of an open world economy. Delamora, Director of the International Trade and Commodities Division of the United Nations Conference on Trade and Development (UNCTAD), believes that China is deeply involved in the global supply chain and value chain, closely connected with the world, and will continue to serve as a key engine for global trade and economic growth.

Recently, the International Monetary Fund (IMF), the World Bank, the Organization for Economic Co-operation and Development (OECD), the Asian Development Bank, and other institutions have successively raised their expectations for China's economic growth rate. IMF Managing Director Kristalina Georgieva said she believes China's economy can achieve stronger growth in the future, "and it is expected that China's contribution to global economic growth will remain around 30% in the coming years.".

Spanish economist Pedro Baragan believes that China's economy is entering a mature stage and is transitioning towards a people-oriented, more balanced, innovation-focused, and green development direction. Against the backdrop of global economic uncertainty and the urgent need for new vitality, China's role as the global economic engine will be strengthened.