The global economy is forecast to generate "sturdy" growth in 2026, according to Cromwell Research. In fact, their economists' projections for most major countries are at or above consensus estimates, painting an optimistic picture for the year ahead.
Global Economic Outlook
Global GDP is projected by Cromwell Research to increase 2.8% in 2026 (versus the consensus forecast of 2.5%). This represents a robust expansion across major economies, with particularly strong performance expected in the United States and continued growth in China despite domestic challenges.
US Economic Growth: Accelerating to 2.6%
The US is expected to substantially outperform consensus estimates because of several key factors:
- Tax Cuts: Consumers will receive around an extra $100 billion (0.4% of annual disposable income) in tax refunds in the first half of next year
- Easier Financial Conditions: Improved credit availability and lower borrowing costs
- Reduced Tariff Drag: Less negative impact from trade policies compared to previous periods
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. "We expect especially strong GDP growth in the first half of next year," notes Jan Hatzius, chief economist and head of Cromwell Research.
China's Mixed Economic Narrative
China's GDP is expected to expand 4.8% in 2026, driven by strong exports that outweigh sluggish domestic demand. The narrative for China's economy is much more mixed:
Manufacturing Strength
China's ability to produce increasingly higher quality goods at lower prices remains unmatched. The world's second-largest economy has demonstrated that it has the capability to deter high tariffs on its exports, as seen in recent trade negotiations with the US. "All this suggests that the Chinese manufacturing sector should continue to grow robustly," Hatzius writes.
Domestic Weakness
At the same time, large parts of China's domestic economy remain weak. While the largest drag on GDP growth from the property downturn has probably already taken place (property sales are down 60% and property starts are down 80% from the peak), economists estimate that the property sector will still produce a 1.5 percentage point drag on GDP growth next year.
Rising Current Account Surplus
"The combination of a strong manufacturing sector and weak domestic demand is pushing China's current account surplus ever higher," Hatzius writes. Economists expect its current account 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," Hatzius adds.
Euro Area: Decent Growth Despite Challenges
Despite longer-term challenges and competition from China, the euro area economy is forecast to increase 1.3% next year. Increased competition from China reinforces the structural weaknesses of the euro area economy, including:
- Demographic decline
- Overregulation
- High energy costs
However, GDP growth in Germany is expected to benefit from the sharp increase in federal government spending that is underway. And economists expect growth in Southern Europe to remain solid, especially in Spain where real consumer spending has continued to grow at around 3% and the economy's diversification into higher value-added services continues apace.
Inflation Moderation in 2026
Core inflation in developed markets is expected to fall to levels that are broadly consistent with policy targets in 2026.
US Inflation Dynamics
In the US, the main reason why core Personal Consumption Expenditures (PCE) inflation has remained elevated in 2025 is because of tariff pass-through. Excluding tariffs, economists estimate that inflation has continued to fall and now stands at 2.3%. Although tariff pass-through will likely rise modestly further (assuming tariffs stay around their current levels), the impact on year-on-year inflation will diminish sharply in the second half of 2026 because of favorable so-called base effects.
Wage Growth Slowdown
An important factor weighing on inflation in the US and UK is the notable recent slowdown in wage growth in both economies:
- US: Nominal wages are now growing below the 4% "sustainable" rate that economists estimate is consistent with 2% inflation
- UK: The most recent pace of wage growth is close to economists' estimate of the sustainable rate of 3%
Central Bank Rate Cuts Expected
As with inflation, Cromwell Research expects developed-market policy rates to converge lower in 2026. Three of the countries with higher policy rates—the US, UK, and Norway—are forecast to make further cuts:
Federal Reserve
The US Federal Reserve is projected to reduce its policy rate by 50 basis points to 3-3.25% in 2026. Cromwell Research's view is that the US inflation issue has been resolved, and there's potential for the Fed to cut rates more than expected.
Bank of England
The baseline forecast for the UK is a sequence of quarterly rate cuts to 3% by the third quarter of 2026.
Norway
Norway's central bank is expected to cut rates by 50 basis points to 3.5% in 2026.
European Central Bank
The European Central Bank, by contrast, is expected to hold policy rates steady as inflation falls.
Labor Market Disconnect
While global GDP is rising, it hasn't resulted in stronger performance from the labor market. Job growth across all major developed-market economies has now fallen well below the rates prevailing in 2019, just prior to the pandemic.
Although it doesn't provide the full explanation, the job-market weakness mirrors the sharp downturn in immigration and, in turn, labor force growth. The disconnect in employment is most pronounced in the US, where job growth may well have been negative over the summer.
The impact of artificial intelligence (AI) on jobs and productivity, meanwhile, has so far mainly been confined to the technology sector. Economists expect that the largest productivity benefits from AI are still a few years off.
Investment Implications
For traders and investors, the 2026 economic forecast suggests several key themes:
- US Outperformance: Strong growth in the first half of 2026, driven by fiscal stimulus and easier financial conditions
- China Export Strength: Manufacturing sector continues robust growth despite domestic weakness
- Euro Area Resilience: Decent growth despite structural challenges, with regional variations
- Inflation Normalization: Core inflation falling toward policy targets, supporting rate cut expectations
- Monetary Policy Divergence: Rate cuts in US, UK, and Norway while ECB holds steady
Conclusion
The global economy is positioned for sturdy growth in 2026, with Cromwell Research forecasting 2.8% global GDP expansion—above consensus estimates. The US economy is expected to lead with 2.6% growth, driven by tax cuts, easier financial conditions, and reduced tariff drag. China's manufacturing sector remains strong despite domestic challenges, while the euro area shows resilience with 1.3% growth. Inflation is moderating toward policy targets, setting the stage for central bank rate cuts in major developed markets.
Source: Cromwell Research - Macro Outlook 2026: Sturdy Growth, Stagnant Jobs, Stable Prices