Economic outlook for 2026: An uncertain road ahead
Professor Joe Nellis · Posted on: December 9th 2025 · read
Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.
Through 2026, organisations worldwide will need to address a geopolitical and economic environment characterised by volatility, uncertainty, complexity, and ambiguity.
These factors will directly influence decisions around investments, international trade, and mergers and acquisitions in the year ahead. In response to these uncertain conditions, many companies are cautious, deferring significant decisions until greater clarity and stability emerges. Some businesses may find chances to grow or acquire assets, but overall, next year looks to be challenging.
This insight is part of the 2026 MHA Global Transaction Report
View the reportGlobal growth prospects
There is little doubt that the global economy is currently facing a fragile and often unpredictable outlook. Trade tensions have cooled to some extent, but protectionist policies will continue to have negative consequences. In addition, persistent inflationary pressures, cautious monetary policy, and elevated public sector debt are all contributing to a climate of economic uncertainty, pressing hard against any economic upturn and investment growth.
Global GDP is expected to grow around 3% in 2025 and 2026, with services demand offsetting weaker trade and manufacturing output, but regional disparities remain significant.
In the United States, growth is forecast to moderate to about 2% as consumer spending cools, while Europe’s growth at a little over 1% will be gradual but slow, led by Germany’s industrial rebound. In China, with property-sector stress and weakening external demand, growth is expected to slow in 2026 to around 4%.
Overall, emerging markets are set to expand by 4% but provide a mixed picture. India will continue to lead at over 6% growth in the next 12 months. The Middle East and Central Asia regions are expected to see stronger growth next year at around 3.8%, but activity in Latin America and the Caribbean is expected to slow down slightly to around 2.3%.
A realignment in trade relationships is slowing growth, forcing companies to source materials and goods from alternative markets, a process that takes time and adds complexity. While this creates challenges, it can also open up opportunities for businesses agile enough to adapt.
"Longer term trends such as geopolitical and social instability, shifting demographics, ageing populations, climate-related catastrophes and technological advancements will all make their mark economically."
Inflation and interest rates
Inflation remains a persistent challenge. While the Global Consumer Price Index is gradually trending lower, falling to around 3% in 2026 as economic growth moderates, it remains above pre-pandemic averages.
Global financial markets are expected to remain sensitive throughout 2026, shaped by inflation, interest rate policy, and ongoing geopolitical uncertainty. Central banks in major economies are likely to stay cautious, with interest rates elevated compared to pre-pandemic levels. While rates are trending downwards, the US Federal Reserve and Bank of England have signalled they won’t cut rates too quickly and risk reigniting inflationary pressures.
Interest rate differentials are set to play a significant role in global capital flows, with higher rates in the United States and the United Kingdom discouraging investment. This divergence is likely to keep currency markets volatile — lower inflation and the faster cutting of interest rates in the Eurozone has strengthened the Euro against the US Dollar and Sterling in recent months. Emerging markets
Investment continues to serve as the driving force underlying economic growth, but a subdued level of M&A activity will persist into 2026. Companies are re-evaluating their strategies, particularly as supply chain realignments accelerate. For organisations contemplating mergers and acquisitions, the fundamental question remains whether the transaction is aimed at strategic expansion or cost-cutting.
