World economy in 2026: Three scenarios and a dystopia

Economists have predicted nine of the last five recessions, goes the old joke about the profession, and like all jokes, it contains a grain of truth: most forecasts are wrong, and major crises, like the one in 2008, catch the world off guard. Now it seems the opposite is true. The global economy has gone 15 consecutive years without a widespread recession, apart from the brief pause caused by the pandemic, despite the serious polycrisis that has threatened it since 2020. Covid-19 was followed by the worst inflationary surge in 40 years, which central banks combated with an abrupt increase in interest rates. The Russian invasion of Ukraine triggered a severe energy shock in Europe, and upon returning to the White House, Donald Trump declared a global trade war.

And so the ship sails on. The end of 2025 has a similar feel to 2023 and 2024, a much better outcome than initially expected, even if its impact is uneven on the ground. Global growth will maintain a cruising speed of 3%, according to the International Monetary Fund (IMF), with differences between the United States (1.9%) and the Eurozone (1%), of course. The U.S. stock market and global indices are at record highs, and unemployment in the developed world is at a low.

The impact of the tariffs has been less than feared. Businesses and investors have adapted to the unstable climate after years of experience navigating all sorts of challenges, and governments in developed countries, regardless of their political affiliation, have readily implemented large stimulus and aid programs to contain the problems. They have, in a way, defied the cyclical theory that was considered a natural part of economics. Add to that exceptionally favorable liquidity conditions, and the system seems impervious to the storms. Who dares to predict a recession now?

But the U.S. economy has a few skeletons in its closet. The financial frenzy surrounding artificial intelligence (AI) overshadows the sluggishness of everything else, such as the uneven distribution of growth, weak consumer spending, unemployment (which reached a four-year high in November), and investment outside of technology. Investment estimates for these sectors reach $8 trillion by 2030, with no guarantee of a return on this expenditure. When it comes to AI, “micro is macro,” BlackRock rightly warns. A collapse would leave no one unscathed anywhere in the world.

China faces its own imbalances and the significant challenge of growing with fewer exports; in the eurozone, Spain maintains a healthy macroeconomic position despite the serious housing crisis, but it remains to be seen whether Germany’s industrial recovery plan will be successful and whether France will spiral out of control due to its budget problems. There is also a well-founded fear of intervention by Trump that would end the Federal Reserve’s independence, compromising its credibility in the fight against inflation.

Visibility regarding what might happen with tariffs in 2026, as with geopolitical tensions, is nonexistent. “What worries me most about the world we are heading towards is the total uncertainty. The international rules that have governed the economy for 60 years no longer apply,” warns Jorge Sicilia, chief economist at BBVA. “For the first time in 50 years, nothing is set in stone,” notes Raymond Torres, director of macroeconomics and international analysis at Spanish think tank Funcas. These are three possible scenarios for 2026, and one dystopia.

Resilient (and a little doped up)

“The world is falling apart and we’re falling in love.” What’s happening with the economy is reminiscent of the line Ilsa Lund delivers to Rick Blaine in Casablanca: they’re in the middle of a war, the Gestapo is after them, and she’s married to someone else, but they have an affair. Here we’ll call it resilience. Although it doesn’t translate in the same way to the real economy, the economy of ordinary citizens, the global situation continues to show signs of strength, and growth forecasts remain at similar levels, only slightly slower than in 2025.

Francisco Uría, director general of the Spanish Institute of Banking and Finance at the CUNEF University in Madrid, joins the ranks of the optimists. “There are reasonable grounds for optimism. I hope the peace agreement in Ukraine will materialize, and I don’t believe we can speak of an AI bubble. Aggregate public debt levels are high, but the markets are managing them, apart from the occasional scare, although it would be good to restore fiscal discipline. All of this would change if there were a geopolitical shock,” he points out. He does, however, warn of widespread artificial inflation. “Public policies have increased spending, monetary policies maintain an expansionary bias, and markets are buoyant. All of this contributes to growth,” he adds.

During the 2022 energy crisis, for example, European governments provided aid equivalent to 3% of GDP. Maintaining stable financial conditions and achieving lasting peace in ongoing conflicts would anchor and even improve the outlook, as would an understanding between the United States and China.

In Europe, the success of the German program represents another upside risk, and Spain deserves separate comment. Considered BlackRock’s “preferred country” in its 2026 projections report — the Ibex 35 has soared by almost 50% — it has become the unexpected engine of the European economy: GDP will end 2025 with a 2.9% increase and will reach 2.2% in 2026, according to the Bank of Spain. The weight of the services sector has been key, as well as the nearly 100 million tourists, the massive influx of immigrants, stimulus measures, and energy management, among other factors. “None of these conditions will change in 2026,” notes Javier Giménez-Díaz of the IESE Business School, adding: “Economic cycles don’t die of old age; they die because something happens to them.”

The consensus among economists, whether cited in this article or not, maintains this baseline scenario combined with the second one. They all urge caution regarding the global situation, which is facing a slowdown in any case. Sicilia summarizes it thus: “The effects of all these shocks on GDP have ultimately offset each other, but that doesn’t mean there aren’t many scars.”

Good or bad? Yes to everything

The scenario described above unfolds alongside a series of risks that, upon closer examination, reveal cracks in the momentum. Alicia García Herrero, chief economist for Asia-Pacific at Natixis and senior research fellow at Bruegel, warns of the risk of inflation in the United States, as she anticipates interest rate cuts reaching as low as 3% by the end of 2026. “The Federal Reserve is going to have a difficult time; we’ve already heard Kevin Hassett [a potential candidate to succeed Jerome Powell at the Fed in 2026] lay the groundwork and say that lowering rates won’t be easy,” she notes. “In Europe, [ECB Executive Board member] Isabel Schnabel has also indicated that the next move is upward, which I don’t understand because the problem we have in Europe is a very strong euro, especially against the renminbi [the Chinese currency], which is the economy that is eating away at our market,” she adds.

The markets’ biggest fear regarding the Fed is its own lack of credibility in the fight against price controls and its potential to bow to Trump’s wishes, especially in an election year (the midterm elections are in November), given that the president has not hesitated to directly attack the institution. This is a potential trigger to be taken very seriously and would exacerbate the budgetary problems of a number of countries.

For the eurozone, France is a source of uncertainty: it will end the year with a deficit of 5.4% (compared to the 3% maximum required by Brussels) and has seen five prime ministers ousted in two years while trying to unblock reforms. But the United States also presents worrying figures, with a budget deficit of 5.9% for this year and interest payments that already exceed its defense budget.

Over the past decade, the combined public debt of advanced economies has reached its highest level since the Napoleonic Wars, and any market shock would trigger a wave of panic. By 2029, globally, it will have reached 100% of GDP, a level not seen since World War II, with some countries already exceeding that threshold, including major powers such as China, the United States, France, Italy, Japan, and the United Kingdom.

The tide goes out: Who’s swimming naked?

“You only find out who is swimming naked when the tide goes out,” Warren Buffett has said repeatedly, referring to various crises. That’s what happens when the exuberance of the markets bursts and the true fundamentals of companies are exposed. The question today — with the stock market euphoria fueled by artificial intelligence — is whether we are facing a bubble and, if so, how and when it will begin to correct itself. “I’m one of those who believes there is a bubble; the question is how it will burst, whether in an orderly fashion or as happened in 2008. The latter could cause many problems, because the stock market is central to the United States,” says Lourdes Casanovas from Cornell University (New York).

An orderly weeding out would keep large companies afloat and remove those most bloated by liquidity from the market, but the effects would be felt throughout the rest of the world nonetheless. BlackRock warns in its report that the credit market is entering a tighter phase this year. Paul de Grauwe, of the London School of Economics, also sees the bubble. “The correction will come — will it be in 2026? In two years? In three? We don’t know, but depending on its severity, it could lead to a recession,” he notes.

In his view, uncertainty surrounding Washington’s international policy constitutes another potential source of problems that could lead to degrowth, but one that is very difficult to predict. In Europe, he highlights the two clashing forces in Germany: the need for its industry to adjust versus the government’s plan, announced last summer, to issue €850 billion in debt by 2029 for defense and infrastructure investments.

For Raymond Torres, “the key lies in what happens in the United States. Spain has little exposure to that risk, but there is a problem with business investment.” Sicilia warns that growth “has been very widespread, with little productivity.” If the tide goes out, as Buffett said, that’s what we’ll see.

A dystopia

Hell has its variations. In this one, we must consider an uncontrolled bursting of the AI bubble and, to the whirlwind that is the Trump administration, add a couple of geopolitical shocks. Gita Gopinath, former deputy managing director of the IMF and now a professor at Harvard, has made some unsettling calculations for The Economist: a correction of the same magnitude as the dot-com bubble would wipe out $20 trillion of American household wealth (equivalent to 70% of GDP), and losses for foreign investors would amount to 20% of the rest of the world’s GDP. The dollar’s role as a safety net, she warns, would no longer function as it once did, given its recent weak performance.

“The most dangerous crises are those triggered by some kind of financial accelerator. In the case of a 30% stock market crash or the collapse of a U.S. bank, the contagion is immediate. Governments must then decide whether to let the system adjust and purge itself, or whether the damage could be far greater and try to stop it. Credit and consumption would suffer in either case,” explains Sicilia. In an even more adverse scenario, economists also point to China’s invasion of Taiwan — key to the all-powerful chip industry — and an escalation of tensions with Venezuela.

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