Ten themes for 2026

Ten themes for 2026

2025 was the year of tariffs, AI and geopolitics. Despite shocks and upsets, GDP growth in the US, the euro area, the UK and China performed much as expected at the start of the year and the global economy grew at a similar rate to that seen in 2024. For all the drama elsewhere, economic performance was dull.

Here are ten themes to watch in 2026.

1. Global growth will chug along at around 3.0%, much the same as in 2024 and 2025. Emerging and developing market economies will grow at roughly twice the rate of the advanced western economies.

2. There’ll be much fretting about the risk of a dotcom-style bust in US AI stocks this year. But with interest rates falling and much of the tech spending being funded from corporate cash, we don’t think it’s the most likely outcome. That points to      another year of strong AI-driven tech spending in the US.

3. What could spoil this rosy picture? Apart from a meltdown in AI stocks watch out for further increases in unemployment and the risk of higher inflation, courtesy of loose fiscal and monetary policy and tariffs.

4. Germany will break out of its low-growth torpor. The German economy has gone nowhere for more than three years at a time when other advanced economies have been growing. The energy shock of 2022–23 hit Germany hard, compounding the woes of the auto sector as it wrestled with the transition to EVs and competition from China. But things are looking up. In a historic move last year, one that required a change to the country’s constitution, Germany’s coalition government agreed a huge package of spending on defence and infrastructure. That spending will kick in this year, lifting capital spending and industrial output, which have been in decline in the last two years. 2026 is likely to be the first year of material growth for the German economy since 2022.  

5. Oil prices will drift lower. Weak global demand and the substitution away from oil in power generation are colliding with excess output, especially from non-OPEC producers including the US and Brazil. OPEC+ doesn’t seem to have an appetite for making deep production cuts to bolster the oil price. Meanwhile cheap energy is a signature policy of the Trump administration – and a political imperative ahead of November’s mid-term elections. The price of Brent crude has halved since mid-2022 and was trading at $64 per barrel last Friday. A modest downward drift, to just below $60, seems likely this year.

6. AI will become increasingly apparent in business. For all the ballyhoo about investment into tech and data centres in the US, businesses outside the tech sector seem to be struggling to get value out of AI. An MIT survey last August found that AI pilots were falling short of expectations in 95% of firms surveyed. Unsurprisingly, the returns from a tidal wave of investment into AI have so far been small - around $50bn a year, according to The Economist. This illustrates a wider lesson about the adoption of new technologies. Time and again, the full deployment and exploitation of a new technology have lagged far behind its creation. It took more than 50 years from Faraday’s pioneering experiments to the early commercial exploitation of electricity in the 1880s. In 1987 the Nobel laureate Robert Solow famously said that “you can see the computer age everywhere but in the productivity statistics”. It was not until later, in the 1990s and early 2000s, that the productivity statistics caught up. US productivity growth has accelerated sharply last year prompting some commentators to claim that AI has already lifted America’s growth rate. We think it’s too early to tell. But with the tech sector speeding to deploy and commercialise AI we’ll have a much better idea of  whether AI can move the dial on productivity this year.

7. Immigration into western countries will weaken. Immigration into the US and Europe has fallen sharply in the last year, in part reversing the increase that took place in the wake of the pandemic. Political choices have played a big role, too. The EU and governments in most EU countries, as well as the UK, the US, Canada and Australia have tightened immigration rules in the last year. With immigration featuring as a prominent concern for many voters we expect levels of migration into western countries to fall in 2026.

8. Hybrid warfare will expand and diversify. The period since Russia’s invasion of Ukraine has witnessed a rising level of cyber-attacks, sabotage, disinformation and economic coercion by Russia against European countries. Tactics include disrupting air travel by flying drones near airports, cutting undersea cables and arson attacks on defence sites. Other countries, including China, North Korea and Iran, have developed their own capacity for hybrid warfare, particularly through cyber-attacks. China has stepped up its incursions into Taiwanese airspace and waters and mounts large-scale exercises practising for a full invasion of the island. So-called grey zone warfare enables countries to further their strategic aims without the risks of full-scale warfare. It is an established tool of policy – and one that is increasingly likely to impinge on daily life in the West.

9. Levels of government debt will rise. Four years on from the end of the pandemic and amid continued global growth, western governments are borrowing on a grand scale. The US is funding increases in public spending and tax cuts through higher borrowing. Over the last 25 years the UK government has had to borrow to meet current spending – on wages, welfare and so on – in all but two years. Last year Germany changed its constitution to allow unlimited debt-financed spending on defence. Most western countries will run deficits this year and some, like the US and UK, are likely to do so until the end of the decade. Levels of government debt will keep rising – and bond markets will keep worrying about how this long borrowing binge will end.

10. This should be another good year for the US, with GDP growth of around 2.5%. President Donald Trump’s One Big Beautiful Bill, which passed into law last July, will deliver sizeable tax cuts for US consumers this year and a boost to consumption.  We see oil prices falling this year,  providing a fillip to growth. And a new, and probably more dovish Fed chair, due to be announced by Mr Trump in May, is likely to keep cutting US interest rates, adding to the stimulus provided by sizeable rate cuts in the last 15 months.
 

OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week up 1.7% at a new record high of 10,125 as equities continued their positive run this year, buoyed by news of a deal between mining giants Rio Tinto and Glencore. 

Economics

• The US economy added a less-than-expected 50,000 jobs in December while the unemployment rate unexpectedly fell to 4.4%, down from 4.6% in November
• US consumer confidence increased for the second consecutive month in January to the highest level since September last year, according to the University of Michigan, due to improvements in sentiment among lower-income consumers
• Data group S&P Global warned of a global copper shortage over the coming years driven by high demand from the energy transition and AI sector. Copper prices reached a record high of over $13,000 per tonne earlier last week over supply disruption concerns
• UK house prices unexpectedly fell in December by 0.6% compared with the previous month to their lowest level since June 2025, according to Halifax
• UK new car sales in 2025 surpassed 2m for the first time since 2019, according to the Society of Motor Manufacturers and Traders, driven by strong sales of Chinese electric vehicles
• The UK military warned of a £28bn funding shortfall over the next ten years that would need to be addressed to implement the government’s military modernisation plans, the FT reports
• Euro area inflation softened to 2% in the year to December, down from 2.1% in November, according to initial estimates. The unemployment rate improved marginally to 6.3% in November

Business

• US oil companies said they would require “serious guarantees” from the US government before investing in Venezuela’s oil industry following the US military’s capture of Venezuelan leader Nicolás Maduro and Mr Trump’s promise of US investment in the country’s oil sector
• Mining companies Glencore and Rio Tinto said they are restarting merger talks, after previous talks collapsed in 2024. A merger could create the world’s largest mining company with a current value of more than $260bn
• Britain’s opposition Conservative Party said it would follow Australia and ban under-16s from accessing social media platforms if they win power
• The UK government is expected to announce a climbdown on rises to business rates bills faced by pubs in England in the coming days. If it does, it would be the government’s fourth major reversal on proposed measures to increase government revenues  
• US pharmaceutical company Merck is considering the purchase of cancer drugmaker Revolution Medicines in a deal worth up to an estimated $32bn, the FT reports
• RG Barry, the US subsidiary of Japanese investment company Marubeni, bought UK sportswear brand Gola amid the current popularity for retro trainers
• Hiring rates by UK electricity network owners are at their highest level in decades, reflecting the pace at which building the transmission infrastructure is required to support the energy transition
• Aldi and Lidl reported record sales in the run-up to Christmas last year and took their largest market share of the Christmas grocery market to date
• Large, London-based companies are choosing not to move office premises due to a slump in the construction sector that has resulted in a shortage of high-end buildings, as well as rising fit-out costs. Companies are instead extending leases and refurbishing existing office spaces, the FT reports

Global and political developments

• Despite a heavy crackdown, protests have continued in Iran with the US-based Human Rights Activist News Agency saying more than 500 people have been killed. The protests pose one of the greatest threats to the Islamic Republic in its history
• Russia used a hypersonic missile to hit infrastructure facilities in western Ukraine last week
• The UK and France committed to deploying troops in Ukraine as part of a potential peace deal. The US previously agreed to defend Ukraine against future attacks 
• An internet blackout occurred in Iran amid continued protests against the government. Iran’s supreme leader Ayatollah Ali Khamenei said that the protesters were acting for Mr Trump
• Mr Trump said that Venezuela will give the US up to 50m barrels of crude oil, to be sold at market prices. Mr Trump said his administration will control the funds “to ensure it is used to benefit the people of Venezuela and the United States”
• Mr Trump also said the US halted plans for a second attack on Venezuela after improved cooperation between the US and Venezuela’s interim government
• The US military captured a Russian-flagged oil tanker sailing in the North Atlantic, which it accused of shipping Iranian oil and breaking US sanctions
• European leaders, including those from the UK, France and Germany, released a joint statement saying that “only Denmark and Greenland can decide on matters concerning their relations”, amid continued comments by Mr Trump that the US could take control of the island, including by use of force
• The UK government said it will exclude the City of London from its push for greater cooperation and alignment with the EU following concerns from the finance industry over changing regulatory frameworks, the FT reports

And finally… during a routine seasonal migration of sheep in a small town in Bavaria about 50 sheep broke away from their flock and rushed into a discount supermarket. After 20 minutes of browsing the drinks aisle and exploring the checkout area, the flock eventually found their way to the exit and left – looking for baaa-gains