As the world continues to grapple with the fallout from President Trump’s trade policies, the global economy is set to face ongoing challenges in 2026. According to the latest forecasts, the International Monetary Fund (IMF) now expects the rate of global economic growth to slow to 3.1% this year, down from its previous prediction of 3.3%.
The impact of the tariffs imposed by the Trump administration has been a key factor behind this downward revision. While the tariff shock may be smaller than originally announced, it has nonetheless reshaped the global economy, with the US and China, the world’s two largest economies, still maintaining more trade restrictions against each other than when Trump took office for his second term.
“This growth is too slow to meet the aspirations of people around the world for better lives,” said Kristalina Georgieva, the head of the IMF, in a recent podcast. She noted that growth has fallen from a pre-COVID average of 3.7%.
Despite the resilience shown so far, the frictions and uncertainties created by the tariffs are taking their toll over time, according to Maurice Obstfeld, a former chief economist at the IMF. The tariffs have pushed up costs for many businesses and increased uncertainty, making it harder for them to plan and invest for the future.
The impact of the tariffs has been mitigated to some extent by factors such as lower interest rates, a fall in the value of the dollar, and the many exemptions they contain. This may help explain why the UN trade agency UNCTAD is forecasting that the value of global trade grew 7% last year to reach more than $35 trillion.
However, Obstfeld warns that the loopholes in the US tariffs are a double-edged sword, as they introduce a lot of uncertainty about how to obtain them. Some countries, such as the UK, South Korea, and Japan, have managed to navigate these complexities and agree trade deals with Trump, but others will be hoping to do the same during 2026.
The global economy will also be influenced by other factors this year, including the renegotiation of the US-Mexico-Canada Agreement (USMCA) trade deal and the potential ratification of a South American trade deal by EU member states. Additionally, a Supreme Court decision on the legality of Trump’s tariffs could have significant implications.
In the US, the resilience of the economy has been a surprise, with strong consumer spending and a booming stock market helping to offset the impact of the tariffs. However, the cost-of-living pressures remain a concern, with inflation in the US and the UK still well above the central banks’ targets.
As the world waits to see the outcome of the meeting between Trump and Chinese President Xi Jinping in April, the future of the global economy remains uncertain. While the two sides have been locked in a battle over issues such as tariffs, rare earth metals, and access to high-end computer chips, there are many other issues that need to be resolved.
“A lot is riding on that [meeting],” said James Zimmerman, who chairs the American Chamber of Commerce in China. “Our expectations are indeed low.” However, he added that it is “very, very important” that there is a sustained dialogue, even if it takes time to deliver results.
With the global economy facing a range of challenges, from trade tensions to cost-of-living pressures, the coming year is likely to be a crucial test for policymakers and businesses around the world.