Accelerate Productivity in 2025

Reignite Growth Despite the Global Slowdown
DOWNLOAD YOUR 25 PAGE TOOLKIT

Executive Summary: World Economic Outlook [2026]

 

 

Frequently Asked Questions (FAQs)

How might currency volatility affect multinational companies?

Currency volatility can erode margins when revenues, costs, or liabilities are denominated in foreign currencies. For example, the EUR/USD moved 14% from 1.02 in Jan 2025 to ~1.17 in Aug 2025, directly impacting cash flows and profitability.

How will emerging economies cope with capital outflows if rates stay high?

If global rates stay high, emerging economies could struggle with capital outflows. They already faced portfolio outflows across both equities and bonds in Q1 2025.

The Global Economy at a Glance

Growth Weakest in Decades

Global growth is running well below historic norms and remains vulnerable to policy and trade shocks. The world GDP growth stands at 3% in 2025 and is expected to reach 3.1% by 2026.

By contrast, the World Bank’s June 2025 Global Economic Prospects projects the global economy to settle into a low-growth regime of about 2.7% in 2025-26. It will be weighed down by higher trade barriers, policy uncertainty, and geopolitical frictions.

 

 

Additionally, productivity growth has been sluggish across many advanced economies, so returns per worker or capital are rising slowly.

Meanwhile, the Organisation for Economic Co-operation and Development (OECD) projects that the working-age population will shrink by 8% between 2023 and 2060. Moreover, the old-age dependency ratio is expected to climb from 31% in 2023 to 52% by 2060. This will sharply increase fiscal burdens and labor supply constraints.

Additionally, elevated levels of public and private debt limit governments’ and firms’ ability to invest aggressively in the future. Further, climate stress, resource constraints, and transition costs add uncertainty and strain, especially in sectors dependent on energy or raw materials.

Resilience vs. Recession

So far, the global economy has shown fragile resilience. Industrial activity and cross-border trade remained resilient through the first half of 2025. Companies front-loaded shipments ahead of new tariffs, while targeted fiscal support in some regions added further momentum.

 

 

Yet the outlook remains tilted to the downside. The World Trade Organization (WTO) now expects merchandise trade to expand by 0.9% in 2025 while reversing its earlier forecast of a contraction.

However, it also warns that higher tariffs will cut into future gains, with trade-volume growth in 2026 projected at just 1.8%, down from a previous estimate of 2.5%. In a scenario where tariff retaliation escalates, global trade could even shrink by 1.5% in 2025 to show how quickly resilience could flip into weakness.

Additional risks compound the picture. Persistent inflation could delay long-awaited interest rate cuts, while renewed spikes in energy and commodity prices would add pressure to both households and firms. Financial tightening remains another threat, as higher borrowing costs can curb investment and push vulnerable economies toward contraction.

Divergent Regional Outlooks – Winners, Losers & Regional Trends

United States – Slow Growth & Policy Crosswinds

The USA economy sends mixed signals. On one side, consumer demand remains firm with spending forecasted to grow 1.4% in 2025, then accelerate slightly to 1.5% in 2026.

At the same time, GDP performance shows a stop-and-go pattern. In Q2 2025, the GDP expanded at a 3.8% annualized rate while rebounding from a revised 0.6% contraction in Q1. The strength came partly from a drop in imports and continued consumer outlays.

 

 

Yet, inflation is still above target. In August 2025, the personal consumption expenditures (PCE) inflation was 2.7% year over year, and core PCE was held at 2.9%. Meanwhile, real consumer spending rose 0.4% month over month.

Higher interest rates and tariffs are already trimming spending on large purchases like cars, appliances, and furniture. It is expected to decline by 0.7% in 2025 and shrink further by 0.2% in 2026, while spending on nondurable goods is forecasted to grow 1.4% in 2025.

 

 

Beyond consumers and inflation, government policy also shapes the growth outlook. In recent years, Congress passed several major fiscal bills under both the Trump and Biden administrations. These include the Infrastructure Investment and Jobs Act, the CHIPS Act, and the Inflation Reduction Act, together referred to as the Big Beautiful Bill.

While these laws strengthen infrastructure, technology, and clean energy, they also carry significant fiscal implications. For instance, these measures could add about USD 2.4 trillion to the federal deficit over the next decade, with more than USD 1 trillion front-loaded in 2026-27. The direct growth effect is modest, with roughly +0.2-0.3 percentage points in 2026, further fading by 2029.

Europe – Fragile Recovery Underway

Lower wholesale energy costs and gas inventories have eased the price shock. EU storage crossed 75% (863.6 TWh) in late August 2025, with TTF front-month hovering near EUR 31-33/MWh in late September.

 

 

These conditions, coupled with steady Norwegian pipeline deliveries and fewer outages, are supporting industrial energy security into 2026.

Growth support also comes from the EU’s RRF. By mid-2025, the Commission reported EUR 306 billion disbursed while urging faster execution before the August 2026 deadline. Italy alone has received about EUR 140.4 billion, which is 72% of its allocation.

Productivity remains Europe’s structural weak spot. ECB analysis highlights decades-long declines in trend labor-productivity growth to complicate competitiveness and monetary transmission. Also, labor disruptions have periodically hit transport and public services, with widespread strike waves across major economies since 2022. The UK still reports elevated days lost to strikes into 2025.

Finally, Europe’s heavy outward orientation leaves it exposed. Exports of goods and services still account for a large share of activity, with the euro area at about 54.7% of GDP in 2022 and Germany at around 41.4% in 2024.

 

 

Policy and trade realignments cut both ways. Policy and trade realignments cut both ways. CBAM is the EU’s tool to put a fair price on carbon emitted during the production of carbon-intensive goods entering the EU.

It also aims to encourage cleaner industrial production in non-EU countries. From January 1, 2026, it enters its definitive phase, which requires annual CBAM certificates for covered imports. This creates compliance costs but also levels carbon price exposure within EU value chains.

China – Struggling to Reignite Momentum

China’s economy showed resilience in early 2025. GDP grew 5.3% year-on-year in H1. It is supported by industrial activity and exports, even though consumption and private investment remained weak. Industrial output rose 6.4%, services expanded 5.5%, retail sales grew 5.0%, and fixed asset investment rose 2.8% in H1.

However, China enters 2026 facing a prolonged property correction. The country expects real GDP growth of 4.7% in 2025, slowing to 4.3% in 2026, while citing rising trade barriers and the ongoing real estate adjustment.

New-home prices fell again in August 2025, resale prices declined across city tiers, and property investment dropped 12.9% year over year from January to August.

Moreover, Consumer confidence remains subdued. The Consumer Confidence Index (CCI) in mid-2025 is still close to historic lows, with concerns about employment, economic stability, and the property downturn weighing on sentiment.

Also, the growth depends on targeted state-backed sectors. In autos, tax breaks for NEVs will run until 2027 and keep increasing demand. However, exports will face new rules requiring special permits for EVs starting January 1, 2026.

Despite trade frictions, China shipped 1.28 million NEVs abroad in 2024 with 6.7% year on year. NEV exports topped 1 million units in H1 2025, which is 74.3% year on year. In clean energy, China’s installed solar PV capacity surpassed 1 TW alternating current (AC) in May 2025. Additionally, 2024 clean-energy investment exceeded USD 625 billion, with wind & solar targets achieved six years early.

Emerging Markets – Mixed Fortunes

South Asia remains the standout. The IMF’s July 2025 update pegs India at 6.4% growth in both 2025 and 2026. With this, the momentum is visible in electronics. India’s smartphone exports jumped 39% year on year in August 2025 to INR 13 580 crore, amid PLI-driven scaling.

Government data indicate PLI approvals across 14 sectors with realized investments around INR 1.76 trillion by mid-2025, supporting deeper local supply chains into 2026. At the regional level, growth in South Asia is expected to slow to about 5.8% in 2025 due to tighter external conditions, but the region will still outpace most others into 2026.

In contrast, Sub-Saharan Africa offers selected high-growth pockets, supported by rapid urbanization and the gradual rollout of the AfCFTA. The number of urban residents is projected to grow by 200% to around 1.4 billion by 2050. It will create a strong demand for housing, utilities, logistics, and consumer services.

AfCFTA implementation is moving forward, with many countries participating in guided trade and reforms. This lays the groundwork for larger cross-border energy and manufacturing projects. However, short-term growth is being limited by debt pressures and higher financing costs.

Latin America and emerging Europe face weaker trends. Growth in Latin America is expected to slow to about 2.2% in 2025 and 2.3% in 2026. In developing Central Asia, including Turkey and Poland, growth is projected to be 2.4% in 2025 and rise only slightly to about 2.7% in 27.

Key Regional Risks & Opportunities

Looking ahead to 2025-26, global electricity demand is projected to rise 3.3% in 2025 and 3.7% in 2026, with AI-driven data centers emerging as a major load factor. At the same time, shipping remains a chokepoint. Average voyage distances lengthened to 5245 miles in 2024 from 4831 miles in 2018.

Moreover, global maritime trade is expected to expand by only 0.5% in 2025. However, improved efficiency at the Panama Canal, where berthing times dropped nearly 47% year-on-year by August 2025, shows that logistics hubs can still offer tactical gains.

Meanwhile, financial risks remain elevated. Global debt stood at USD 337.7 trillion in mid-2025, with emerging markets facing USD 3.2 trillion in redemptions before year-end. This adds stress just as foreign direct investment remains weak after an 11% global decline in 2024, though a modest recovery is expected in 2025.

Regional opportunities are also visible as services and digital FDI are rising in Asia. Over the past decade, the share of FDI in services climbed to 58% from 46% over the previous decade.

Meanwhile, Africa is becoming an important growth area for data infrastructure. Online activity is projected to add USD 180 billion in economic value by 2025.

 

 

Sectoral Outlook: Which Industries Will Struggle or Thrive?

Manufacturing in a Slump

After the strong early 2025 push, the global industrial cycle began to lose momentum by mid-year. The global manufacturing PMI fell to 49.7 in July 2025 from 50.4 in June 2025.

 

 

Likewise, new order inflows into factories dipped in July, after rising marginally in June. This decline was led by a slight worsening in the global export order book trend.

Meanwhile, heavy manufacturing segments, like chemicals and metals, showed declining production in Q1 2025 globally, as basic materials sectors lagged through early 2025. Also, Q1 2025 saw only a 0.2% gain in manufacturing exports across regions.

 

 

Tariff measures have added further headwinds. New U.S. tariffs in 2025 have raised USD 88 billion in revenue through August, with average effective tariff rates rising toward 10-11.5%

Yet, green manufacturing remains a standout. In the USA, quarterly clean-tech manufacturing investment climbed to USD 14 billion in Q1 2025.

On the technology front, smart factory pilots implemented in 2025 using IoT and resource optimization models report 18% lower energy consumption, 22% less machine downtime, and 15% improved utilization.

Services Holding Up (So Far)

In 2025, travel and hospitality remained resilient. The U.S. Travel Association projects an 8.8% rise in inbound international visits with USD 200 billion in international spending. However, hotels show mixed trends. CBRE forecasts about 2% revenue per available room (RevPAR) growth in 2025. Within this, urban markets are expected to grow by 2.8%, suburbs by 1.3%, and small towns by 1.8%.

Further, stress in commercial real estate and banking is quantifiable through maturing debt loads, rising vacancies, and compressed rent growth. Banks reported tightening lending standards for commercial real estate loans in the fourth quarter of 2024. Nearly 20% of these loans, totaling just under USD 1 trillion, are scheduled to mature in 2025, adding refinancing pressures as interest rates remain elevated.

 

 

Further, loan impairment rates stood at 50 basis points in 2024, compared with a long-term average of 64 basis points between 2010 and 2019. They are expected to remain near these levels in 2025.

Similarly, health care services expand as nearly 90% of executives anticipate broader adoption of digital tools, connected care delivery, and virtual health in shaping their strategies. The global digital health market is also projected to reach USD 2.19 trillion in 2034 at a compound annual growth rate (CAGR) of 21.2%.

 

 

Meanwhile, the logistics sector benefits from the sustained expansion of e-commerce, with the global logistics market forecast to grow toward USD 8.1 trillion by 2030 at a 5% CAGR, as demand for last-mile services increases. This expansion is driven by factors including the rise of commerce, globalization of trade, and growing demand for faster delivery.

Technology & Digital Industries

Valuations of the top private cloud and AI companies surpassed USD 1.1 trillion in 2025, up 36% year over year. AI companies, like OpenAI and Anthropic, make up 42% of the top 100 versus 21% a year ago.

 

 

Major compute deals highlight this momentum. CoreWeave expanded its pact with OpenAI by USD 6.5 billion and brought the total to USD 22.4 billion. On the other hand, Anthropic’s revenue run rate surged past USD 5 billion as its enterprise customers grew from under 1000 to over 300 000 in two years.

However, sustaining this trajectory could be challenging. AI will require USD 2 trillion in annual revenue by 2030 while leaving an USD 800 billion shortfall. Also, global data centers may consume 200 GW of power by then, half in the USA.

 

 

Meanwhile, global semiconductor sales are projected at USD 697 billion in 2025, up from USD 627 billion in 2024.

These fundamentals are creating a rebound in venture funding and mergers & acquisitions (M&A) as financial conditions ease. In Q1 2025, VC funding reached USD 80.1 billion, up 28% quarter over quarter. However, overall funding would have fallen 36% without the USD 40 billion AI deal.

Consumer Goods & Retail

Consumer sentiment rose 16% month over month in June, its first increase in six months, but remains 18% below December 2024 levels. While tariff pressures eased, households still expect higher inflation and an economic slowdown ahead.

Further, 40% of consumers say they will not reduce spending on essentials like groceries, vitamins and supplements, and gasoline. Likewise, about 50% are delaying discretionary purchases in categories such as electronics, accessories, and jewelry, or dining out.

Similarly, luxury spending is under pressure as price fatigue and economic uncertainty weigh on demand. The global personal luxury goods market is expected to decline by 2-5 % this year after a contraction in 2024.

Retail outlook for 2025 is moderately optimistic. Retail sales are expected to reach between USD 5.42 trillion and USD 5.48 trillion. However, the U.S. food-at-home (grocery store or supermarket food purchases) consumer price index (CPI) increased 0.4% from July to August 2025 and is now up 2.7% over the last year. Meanwhile, food-away-from-home (restaurant and other foodservice purchases) inflation is up 3.9% year over year.

 

 

Further, retail trade & food services spending was up 0.6% year over year in early 2025, according to debit/credit card data. General Merchandise stores, including wholesale clubs, discount stores, and department stores, grew 4.1% year over year, while Clothing and Accessories stores underperformed.

Energy & Commodities Sectors

Oil and gas prices showed signs of stabilization while offering relief to both exporters and importers. Brent crude price is expected to reach USD 66 per barrel in 2025 and USD 58 per barrel in 2026.

 

“Increasing supply to maximize revenue might be the optimal strategy for an oil-producing country. This heightens the risk of another market reset occurring somewhere between 2025 and 2026.”

– Natasha Kaneva, Head of Global Commodities Strategy, J.P. Morgan

 

Further, the global oil demand is expected to rise by 680 000 barrels per day in 2025 and reach 104.4 million barrels per day. This stands true even as supply expands by more than 2.5 million barrels per day.

At the same time, renewables and critical minerals emerge as growth drivers. In 2024, the world added over 585 GW of renewable capacity. It accounted for more than 90% of all new power generation additions and marked the largest annual increase in history.

Moreover, renewable power generation is projected to grow by around 10% in 2025, with renewables set to surpass coal as the leading source of global electricity within the year.

 

 

Additionally, 85% of all new power capacity going forward will be renewables.

Moreover, solar power alone dominated U.S. installations. It contributed 69% of new grid capacity in Q1 2025, with 8.6 GW added. However, total solar additions of 10.8 GW DC were about 7% below last year’s pace.

Similarly, global lithium demand is expected to reach 3.7 million tonnes of lithium carbonate equivalent (LCE) by 2030.

At the market level, the global critical minerals sector is projected to grow at about 7.53% CAGR by 2032 to reach USD 586.63 billion.

Key Economic Drivers & Headwinds Shaping the Outlook

Amid intensifying geopolitical rivalry, trade tensions, and protectionist measures are among the most acute headwinds in the global economic outlook.

For instance, the effective U.S. tariff rate across imports rose to 19.5% by the end of August 2025, the highest since the 1930s. Meanwhile, global trade growth forecasts for 2025 were revised down from 3.4% to 1.8% due to front-loading effects, tariff retaliation, and policy uncertainty.

In response, organizations accelerate supply chain realignment. For example, companies reorient procurement toward ASEAN nations even as China remains embedded in many upstream value chains. However, such shifts are costly and gradual, as overzealous reshoring could reduce global trade by 18%.

 

Source: OECD

 

As a result, firms face a difficult balancing act between resilience and efficiency, with inventory buffers, dual sourcing, and flexible logistics becoming more critical than ever.

On the monetary front, central banks in many advanced economies reach a turning point, though timing and magnitude remain uncertain. G20 headline inflation is expected to moderate from 6.2% in 2024 to 3.6% in 2025 and further to 3.2% in 2026.

 

 

Meanwhile, the U.S. labor market remains relatively firm, with the unemployment rate steady around 4.2% in mid-2025. Moreover, the appropriate monetary policy will need to navigate between sustaining price stability and not overly strangling growth.

Further, technology becomes one of the few strong levers for lifting potential growth, though real economy impacts remain uneven. Across OECD countries (excluding Turkey), labor productivity growth is estimated to have stagnated at around 0.4% in 2024.

 

Source: OECD

 

Multifactor productivity (the efficiency with which capital and labor combine) has also been weak or declining in many cases. Nevertheless, advances in technologies like generative AI and automation could act as a future productivity catalyst if diffusion accelerates beyond pilot phases.

Explore Emerging Technologies & Startups Shaping the World Economy

In a rapidly shifting global economy, business leaders face uncertainty from trade tensions, supply chain realignments, and technological disruption. Identifying where risks may erode value and where opportunities can deliver growth is more complex than ever.

With access to over 9 million emerging companies and 20K+ technologies & trends globally, our AI and Big Data-powered Discovery Platform equips you with the actionable insights you need to stay ahead of the curve in your market.

By leveraging this platform, anticipate regional shifts, capture growth in frontier markets, and invest confidently in the industries that will define the next decade. Stay prepared, resilient, and positioned to lead in 2026 and beyond.