A view from London

Here are ten themes to watch in 2026.

1. Global growth will chug along at around 3.0%, much the same as in 2024 and 2025. Emerging and developing market economies will grow at roughly twice the rate of the advanced western economies.
2. This should be another good year for the US, with GDP growth of around 2.5%. President Donald Trump’s One Big Beautiful Bill, which passed into law last July, will deliver sizeable tax cuts for US consumers this year and a boost to consumption. We see oil prices falling this year, providing a fillip to growth. And a new, and probably more dovish Federal Reserve chair, due to be announced by Mr Trump in May, is likely to keep cutting US interest rates, adding to the stimulus provided by sizeable rate cuts in the last 15 months.
3. There’ll be much fretting about the risk of a dotcom-style bust in US AI stocks this year. But with interest rates falling and much of the tech spending being funded from corporate cash, we don’t think it’s the most likely outcome. That points to another year of strong AI-driven tech spending in the US.
4. What could spoil this rosy picture? Apart from a meltdown in AI stocks watch out for further increases in unemployment and the risk of higher inflation, courtesy of loose fiscal and monetary policy and tariffs.
5. Germany will break out of its low-growth torpor. The German economy has gone nowhere for more than three years at a time when other advanced economies have been growing. The energy shock of 2022–23 hit Germany hard, compounding the woes of the auto sector as it wrestled with the transition to EVs and competition from China. But things are looking up. In a historic move last year, one that required a change to the country’s constitution, Germany’s coalition government agreed a huge package of spending on defence and infrastructure. That spending will kick in this year, lifting capital spending and industrial output, which have been in decline in the last two years. 2026 is likely to be the first year of material growth for the German economy since 2022.
6. Oil prices will drift lower. Weak global demand and the substitution away from oil in power generation are colliding with excess output, especially from non-OPEC producers including the US and Brazil. OPEC+ doesn’t seem to have an appetite for making deep production cuts to bolster the oil price. Meanwhile cheap energy is a signature policy of the Trump administration – and a political imperative ahead of November’s mid-term elections. The price of Brent crude has halved since mid-2022 and was trading at $64 per barrel last Friday. A modest downward drift, to just below $60, seems likely this year.
7. AI will become increasingly apparent in business. For all the ballyhoo about investment into tech and data centres in the US, businesses outside the tech sector seem to be struggling to get value out of AI. An MIT survey last August found that AI pilots were falling short of expectations in 95% of firms surveyed. Unsurprisingly, the returns from a tidal wave of investment into AI have so far been small – around $50bn a year, according to The Economist. This illustrates a wider lesson about the adoption of new technologies. Time and again, the full deployment and exploitation of a new technology have lagged far behind its creation. It took more than 50 years from Faraday’s pioneering experiments to the early commercial exploitation of electricity in the 1880s. In 1987 the Nobel laureate Robert Solow famously said that “you can see the computer age everywhere but in the productivity statistics”. It was not until later, in the 1990s and early 2000s, that the productivity statistics caught up. US productivity growth accelerated sharply last year prompting some commentators to claim that AI has already lifted America’s growth rate. We think it’s too early to tell. But with the tech sector speeding to deploy and commercialise AI we’ll have a much better idea of whether AI can move the dial on productivity this year.
8. Immigration into western countries will weaken. Immigration into the US and Europe fell sharply last year, in part reversing the increase that took place in the wake of the pandemic. Political choices have played a big role, too. The EU and governments in most EU countries, as well as the UK, the US, Canada and Australia have tightened immigration rules in the last year. With immigration featuring as a prominent concern for many voters we expect levels of migration into western countries to fall in 2026.
9. Hybrid warfare will expand and diversify. The period since Russia’s invasion of Ukraine has witnessed a rising level of cyber-attacks, sabotage, disinformation and economic coercion by Russia against European countries. Tactics include disrupting air travel by flying drones near airports, cutting undersea cables and arson attacks on defence sites. Other countries, including China, North Korea and Iran, have developed their own capacity for hybrid warfare, particularly through cyber-attacks. China has stepped up its incursions into Taiwanese airspace and waters and mounts large-scale exercises practising for a full invasion of the island. So-called grey-zone warfare enables countries to further their strategic aims without the risks of full-scale warfare. It is an established tool of policy – and one that is increasingly likely to impinge on daily life in the West.
10. Levels of government debt will rise. Four years on from the end of the pandemic and amid continued global growth, western governments are borrowing on a grand scale. The US is funding increases in public spending and tax cuts through higher borrowing. Over the last 25 years the UK government has had to borrow to meet current spending – on wages, welfare and so on – in all but two years. Last year Germany changed its constitution to allow unlimited debt-financed spending on defence. Most western countries will run deficits this year and some, like the US and UK, are likely to do so until the end of the decade. Levels of government debt will keep rising – and bond markets will keep worrying about how this long borrowing binge will end.