10 Risks for the Global Economy in 2026

From AI bubbles to government spending splurges, property crashes to oil price spikes, these are the 10 ways our economic outlook for 2026 could go wrong – or right

1. The AI Bubble Bursts

US tech companies fail to monetise AI, questioning the logic of immense investment in hardware/software and related industries. Tech stocks crash, hitting the top 20% of American earners who own the lion’s share of US equities held domestically.

Having enabled consumer spending to grow over the past couple of years, even as the bottom 60% have struggled, lower household wealth causes a fall in consumption in 2026.

AI investment falls abruptly, weighing on the construction and investment that has likely contributed around one percentage point to US growth in 2025 (though less once imported equipment is netted off). This is enough to push the US jobs market into a full-blown recession.

Impact: The US falls into recession, while Europe is less affected. The Fed cuts rates more aggressively.

2. Congress Approves ‘Tariff Rebates’ Ahead of Mid-terms

Fiscal policy is a major upside risk to growth and inflation in 2026. President Trump is pushing Congress to hand out $2,000 ‘tariff rebate’ checks to 150 million Americans, resurfacing memories of the Covid-era stimulus that helped turbocharge inflation. Though the maths doesn’t totally add up – and tariffs already helped justify the One Big Beautiful Bill – pressure could build into November’s mid-term elections.

This would help the bottom 60% of American consumers struggling under the weight of the cost of living, though much of it may simply be used to pay off debt, and the impact on growth may be more muted than in 2020/21.

Impact: US growth is higher and inflation rises. The Fed becomes more hawkish, depending on political influence over the committee.

3. Inflation Resurgence on AI Supply Bottlenecks

Many economists – not least the Fed’s doves – expect AI to be a massive positive for productivity, which pushes down inflation. But what if that’s wrong? In the short term, massive investment in AI infrastructure could crowd out other forms of economic activity. Data centres are expected to account for 10% of US power demand by 2030. Electricity grids globally will be under increasing strain, risking blackouts and higher prices. Rising investment needs also risk fresh supply shortages, at a time of tighter immigration rules in the US and Europe. Wage growth risks turning higher again.

Impact: Global inflation rises. Central bank rate hikes draw nearer.

4. President Trump Slashes Tariffs as Negative Impact Grows

There are two ways the US average tariff – currently around 16% – could fall. First, the US administration opts to lower tariffs ahead of the elections, just as it has done with certain food products recently. The resulting fall in revenue would complicate efforts to convince Congress to approve ‘tariff rebate’ checks, but it’s possible that once this is done, the president will begin to roll back trade barriers in a bid to lower consumer bills.

Alternatively, the Supreme Court rules that tariffs imposed under emergency powers – most country-level levies – are illegal. The president uses other means, such as Section 122, which allows 15% tariffs for 150 days, to rebuild trade barriers – but the result is messier. He could also widen the scope of sector-specific tariffs, though this would take time. The result may well be a lower average tariff level.

Impact: Growth rises, inflation eases, but the former is judged as the dominant factor by the Fed. US rate cuts are curtailed.

5. European Consumers Start Splashing the Cash

At 15%, the eurozone savings rate has consistently been three percentage points above its pre-Covid average. Savings intentions remain ultra-high. But having had time to rebuild savings after the 2022 energy crisis – and after a period of stable 2% inflation – it’s possible consumers will begin to splash the cash more willingly in 2026. At least if governments can take away policy uncertainty regarding pensions.

Impact: The eurozone grows above trend (upwards of 1.5% annual growth). The ECB hikes rates in late 2026.

6. US-China Relations Sour, Hitting Supply of Rare Earths

The US-China friction has been alleviated after a face-to-face meeting between Presidents Trump and Xi led to a 12-month truce, which theoretically would leave tariffs and export controls unchanged for much of 2026. However, the truce remains fragile, and any miscalculations along the way could derail the deal. If cooler minds do not prevail, non-tariff barriers such as rare earth controls could be enacted.

Impact: Direct impact on semiconductor, auto, and defence sectors, potentially resulting in shortages and price surges on affected products, contributing to higher inflation.

7. Oil Prices Spike on Renewed Geopolitical Tensions

The key upside risk to oil prices remains Russian supply, due to both US sanctions and persistent Ukrainian attacks on Russian energy infrastructure. The widely held view is that Russian oil will find ways to circumvent sanctions. However, if sanctions prove to be more effective than thought, this potentially reduces the scale of the oil surplus expected in 2026, and is an upside risk to our view that Brent will average $57/bbl next year.

The recent escalation between the US and Venezuela also leaves uncertainty over Venezuelan supply, while the fragility of the Israel/Gaza ceasefire means that supply risks from the Middle East could re-emerge.

Impact: Weaker global growth and higher inflation. Central banks are more likely to hike rates/curtail rate cuts to lean against inflation risk.

8. Budget Crises Loom as Bond Investors Lose Confidence

Investors have been surprisingly immune to concerns about the trajectory of the US fiscal deficit this year, helped perhaps by lingering concerns about the US macro outlook and resumption of Fed rate cuts. But America’s public finances are precarious; the deficit is expected to remain at 6-7% for some time. There’s a risk investors begin to baulk at the volume of debt issuance, potentially in the aftermath of our second scenario – fiscal profligacy combined with a perception of too loose monetary policy and hints of inflation.

Europe remains vulnerable too; the situation in France could become more widespread as spending pressures mount – not least from defence. Bond yields would spike, and the economic impact would depend greatly on how central banks react. Do we see a return to QE – or in Europe’s case, the first use of its ‘Transmission Protection Instrument’? If not, governments may be forced to embrace austerity.

Impact: Governments – particularly in Europe – forced into painful spending cuts in a bid to halt the bond sell-off. Growth slumps.

9. China Enters Downturn on Deeper Property Price Correction

After stabilising at the start of 2025, the downturn in property prices began to steepen once more, starting in mid-2025. Prices have fallen, inventories remain high, and property investment remains a major drag on growth. Default concerns have re-emerged after property developer Vanke asked for a 1-year extension on a bond payment.

After rolling out myriad policies to help stabilise the markets in 2024, the momentum has slowed in 2025, with more voices advocating for just letting the cycle fully play out naturally over the coming years instead of trying to stabilise the market – a move which could have serious implications. The spillover effects could be significant if the downward momentum is not contained.

Impact: Household wealth destruction, deteriorating bank asset quality, and entrenched pessimism would all be potential consequences if the property downturn continues. It would hamper efforts to transition toward domestic demand-driven growth, as well as reduce the growth outlook in the near term.

10. Ukraine War Ends with Full and Enduring Peace Agreement

If peace negotiations are successful, the wider economic impact will likely depend on the extent to which trickier topics – such as territorial recognition – are addressed, and how enduring any ceasefire is perceived to be. In a more optimistic scenario – where a credible, long-term agreement is reached and investors feel confident about redeploying money in Ukraine – reconstruction efforts would likely have wider ripple effects on activity and, more importantly, sentiment in Eastern Europe.

Lower energy prices, depending on the extent of sanction removal, could also have a stimulative effect on global consumers. However, our energy team notes that Russian oil supply hasn’t materially fallen in recent years, so the impact on the global supply balance may not be significant. Although, admittedly, it would reduce a large amount of supply risk hanging over the oil market. The impact on the gas market would be more significant, but this would require Europe to start resuming its purchases of Russian natural gas.

Impact: Lower energy prices boost global growth. Some central banks (e.g. the Bank of England) may counterintuitively react dovishly, having recently reacted hawkishly to price spikes on fears of supply-driven inflation.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

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