author & date of publication: Tomas | 13.1.2026
The year 2025 was defined by significant macroeconomic volatility and transformative geopolitical shifts. A primary driver of global uncertainty was the “Liberation Day” tariff announcements in April, which sparked trade hostilities and contributed to the longest government shutdown in history. Despite these headwinds, the global economy proved resilient, with U.S. GDP growing at 1.8% and global equity markets closing the year with double-digit gains. This performance was largely sustained by massive capital outlays in AI infrastructure, which surged by 69% during the year, and the passage of the One Big Beautiful Bill Act (OBBBA), which provided fiscal stimulus. Geopolitically, tensions remained high due to ongoing conflicts in Ukraine and the Middle East, while a “technological war” intensified between the U.S. and China over semiconductor independence and AI supremacy. Central banks, including the Federal Reserve, began an easing cycle in the autumn as hiring moderated, even as inflation remained above target.
While the Western world was cutting rates, Japan headed in the opposite direction. Leading the pack was the U.S. Federal Reserve, which remained on the defensive for most of last year. The Fed had to balance the threat of “tariff-driven inflation” with the need to keep the American labor market in good shape. Adopting a “wait-and-see” strategy, the Fed kept rates unchanged for the first eight months of 2025. The floodgates finally opened in September, marking the start of a series of three precisely measured cuts. Reductions on September 17, October 29, and December 10 – each by 25 basis points – pushed the target range down from the original 4.25% – 4.50% to the current 3.50% – 3.75%.
On the Old Continent, the ECB acted with greater vigor, capitalizing on more favorable inflation developments. It implemented four cuts in the first half of 2025 alone, seamlessly continuing the easing cycle initiated in 2024. Following adjustments in February, March, April, and June, the deposit rate settled at the 2.00% mark.
The Bank of England saw a similarly dynamic development. Despite pessimistic forecasts that labeled Britain as the inflation outlier of the G7, the BoE managed to deliver four rate cuts. The Bank Rate gradually fell from 4.75% in January to the current 3.75%. The final cut in December was accompanied by optimism surrounding Rachel Reeves’s new fiscal policy, which could see the UK reach its inflation target as early as this coming summer.
However, the Bank of Japan chose a completely unique trajectory. While the Western world benefited from disinflationary pressures, Tokyo continued its historic normalization process. The BoJ raised its short-term rate twice last year—in January and December—by 25 basis points each time. The current level of 0.75% marks the definitive end of the era of ultra-loose policy and confirms the board’s commitment to tackling persistent price pressures.
Households have endured a challenging period of high living costs driven by persistent inflation, but 2026 offers hope for a significant slowdown in consumer price growth. Economists forecast a so-called “normalization” of inflation across developed nations. This shift should allow central banks to conclude their interest rate-cutting cycles, liberating the economy from the constraints of expensive credit.
Current OECD projections suggest that 2026 will be a period of noticeable cooling for the global economy, with world GDP growth slowing to 2.9%. We view this year as a “breather” phase, where economies adapt to previous monetary restrictions before a slight recovery in 2027. Regarding key players, the United States (1.7%) and the United Kingdom (1.2%) show a temporary weakening of growth in 2026, while China continues its gradual downward trend at 4.4%. European powers such as France (1.0%), Germany (1.0%), and Italy (0.6%) remain highly fragile, confirming the uneven recovery dynamics within the Eurozone.
In 2026, global monetary policy is expected to be highly fragmented, with each major central bank at a different stage of its cycle. The U.S. Federal Reserve will likely focus on reaching a neutral rate setting of around 3.25%. This shift will be primarily driven by a weakening labor market showing signs of fragility and stagnant hiring. Although inflation remains slightly elevated due to tariffs and insurance costs, the prevailing view is that disinflationary impulses from energy and housing will predominate, allowing for further easing – especially if a new, more “dovish” Fed chair is appointed in May.
Conversely, the European Central Bank will adopt a much more restrained stance in 2026. The bank currently finds itself in what it calls a “good place” with inflation near 2% and growth that is stable, albeit below potential. Consequently, the base case for 2026 assumes no changes in rates, as monetary policy cannot effectively address the Eurozone’s structural weaknesses. Only in the event of a significant undershoot of the inflation target would one or two additional cuts in the first half of the year be considered.
The Bank of England will enter 2026 with a deeply divided committee but a clearer disinflationary trend. Headline inflation in the UK is expected to fall more sharply starting in April 2026, which, combined with slowing wage growth, will create room for two additional rate cuts during the first half of the year. Once it is confirmed that the UK is no longer an inflationary outlier, the need to support the labor market will prevail among the Governor and the committee.
The Bank of Japan will follow a completely opposite trajectory, continuing its gradual policy normalization. Given stable inflation around 2% and solid GDP growth above potential, the BoJ is expected to continue raising interest rates in 2026, targeting a level of 1.0% by year-end. This process will be bolstered by government fiscal packages stimulating investment and consumption, though political pressure for policy coordination may slightly slow the pace of these changes.
However, several specific events could trigger a stronger wave of growth:
Several significant risks could derail economic returns and stability in the coming year:
The year 2026 is shaping up to be a period of a “great breather”, during which the global economy stabilizes after a turbulent 2025, albeit at the cost of a noticeable cooling of growth to 2.9%. While households will feel relief due to the normalization of inflation, the labor markets in the US and UK will begin to show signs of fragility, with unemployment hitting multi-year highs. In this environment, central banks will adopt a fragmented approach: the U.S. Federal Reserve is likely to target a neutral rate of 3.25%, bolstered by the potential appointment of new, dovish leadership in May, while the ECB will remain restrained at the 2.00% level. Japan will remain the exception, continuing its historic normalization by raising rates toward 1.0%.
Economic dynamics in 2026 will be primarily driven by fiscal stimuli and technological progress. In the United States, expansion is expected through packages like the “One Big Beautiful Bill” in connection with the midterm elections, while Europe will bet on massive investments in the defense industry and digital transformation. Artificial intelligence remains a key engine, with the focus shifting from building infrastructure to the material demonstration of return on investment and increasing labor productivity. If AI can be integrated into business processes effectively, this technological leap could offset the negative impacts of cooling recruitment and keep economies growing despite structural changes.
However, the outlook remains burdened by significant risks, particularly in the areas of geopolitics and fiscal stability. The world is moving toward an era of frozen conflicts in Ukraine and the Middle East, complemented by a new flashpoint in Latin America following U.S. intervention in Venezuela, which is destabilizing the entire region. International trade will continue to face uncertainty due to high U.S. tariffs and revisions of trade agreements. Furthermore, financial markets remain vigilant regarding the unsustainability of sovereign debt and the threat of an AI-driven tech bubble bursting if massive capital outlays do not yield the expected profits in 2026.