Global Economic Outlook for 2026
The global economy is expected to experience significant growth in the first half of 2026, driven by various factors. According to experts, the impulse from these forces is expected to be front-loaded in the first half of 2026, and the rebound from the US government shutdown will also provide a boost. This growth is anticipated to be especially strong, with economists predicting a notable increase in GDP.
Labor Market Performance
However, despite the rising global GDP, the labor market has not shown a corresponding improvement. Job growth across all major developed-market economies has fallen well below the rates prevailing in 2019, just prior to the pandemic. This disconnect in employment is most pronounced in the US, where job growth may have been negative over the summer.
Factors Influencing Labor Market Weakness
The sharp downturn in immigration and labor force growth are factors that mirror the job-market weakness. Although these factors do not provide the full explanation, they contribute to the current state of the labor market. The impact of artificial intelligence (AI) on jobs and productivity has so far been mainly confined to the technology sector, with the largest productivity benefits from AI still a few years off.
Outlook for China’s Economy
The narrative for China’s economy is mixed. On one hand, China’s ability to produce high-quality goods at lower prices remains unmatched. The country has demonstrated its capability to deter high tariffs on its exports, as seen in recent trade negotiations with the US. This suggests that the Chinese manufacturing sector should continue to grow robustly.
Challenges Facing China’s Domestic Economy
On the other hand, large parts of China’s domestic economy remain weak. The property downturn has had a significant impact, with property sales down 60% and property starts down 80% from the peak. Although the largest drag on GDP growth from the property downturn has probably already taken place, the property sector is expected to produce a 1.5 percentage point drag on GDP growth next year.
Impact on Global Trade
The combination of a strong manufacturing sector and weak domestic demand is pushing China’s current account surplus ever higher. Economists expect this surplus to increase to almost 1% of global GDP over the next 3-5 years, the biggest surplus of any country in recorded history. This is likely to weigh heavily on growth in economies that compete intensively with China, such as the euro area and particularly Germany.
Conclusion
In conclusion, the global economy is expected to experience significant growth in the first half of 2026, driven by various factors. However, the labor market has not shown a corresponding improvement, with job growth falling below pre-pandemic rates. China’s economy is mixed, with a strong manufacturing sector but a weak domestic economy. The country’s growing current account surplus is expected to have a significant impact on global trade, weighing heavily on growth in competing economies.
