Global economic outlook 2026: Insights from BDO’s Chief Economist
The global economy enters 2026 in a strange position: resilient on the surface, but increasingly fragile underneath, writes BDO Chief Economist Anders Magnusson.
The global economy enters 2026 in a strange position: resilient on the surface, but increasingly fragile underneath.
A drastically reshaped policy environment is weighing on confidence, while a surge in technology investment is propping up growth. While some of the more extreme trade measures floated last year have not been realised, volatility remains high.
Temporary factors that buoyed activity in early 2025, such as trade frontloading ahead of tariff changes, are now unwinding as technology investment picks up the slack.
A global outlook defined by adjustment
The January estimates from the International Monetary Fund (IMF) indicate that global growth is estimated to remain at 3.3 per cent in 2026, before slowing slightly to 3.2 per cent in 2027.
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This is slightly stronger than the projections made in 2025, after the trade policy shifts early in the year, due to technology investment, fiscal and monetary support, accommodative financial conditions, and private sector adaptability. Earlier in January, the World Bank Group also revised their growth forecast for 2026 and 2027.
Growth remains uneven:
- Advanced economies are expected to expand at around 1.8 per cent in 2026, an improvement from previous forecasts due partly to a concentration of technology investment in the United States (US)
- Emerging market and developing economies continue to grow just above 4 per cent, supported by demographic momentum and ongoing structural transformation in Asia and Africa
- Inflation continues to ease globally, though the picture varies. The US remains above target, with risks tilted to the upside, while inflation is subdued across Europe and Asia.
Risks to growth are generally on the downside. Renewed protectionism, ongoing labour supply constraints, potential for corrections in markets as Artificial Intelligence (AI) productivity expectations become grounded, and the broader erosion of global governance, all threaten stability and confidence.
Growth from technology investment is welcome, but it is increasingly concentrated, which leaves the economy more exposed to the performance of a narrow set of sectors. In this case, that sector is one that has not yet proven its productivity dividend. Global growth is proving resilient while remaining fragile.
Geopolitics and regional dynamics causing heightened sensitivity
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US trade and foreign policy are beginning to exert their underlying structural effects.
Although recent trade policy outcomes have been less extreme than initially feared, they remain a material drag on global activity.
Meanwhile, the US’ decision to seize Venezuelan assets, impose new sanctions and to break away from the retaliatory narrative surrounding new tariffs adds further layers of geopolitical complexity.
Other regional conflicts, such as in Ukraine and Gaza, continue to generate uncertainty. Rising tensions surrounding Taiwan and Iran, and the territorial dispute over Greenland underscore that 2026 is shaped by a broad set of geopolitical risks.
China’s growth is slowing structurally, consistent with its transition toward a more mature, domestically driven economy. The economy is shifting from investment-led expansion to household consumption and services, but this recalibration continues to weigh on growth.
Artificial intelligence and automation for productivity
AI made significant progress in 2025, though the year was more about scaling and embedding existing technologies rather than realising the true benefit potential. Models became cheaper and more capable, AI agents expanded, and AI was integrated into existing products in a somewhat superficial way. More importantly, organisations and households became more familiar with AI and began adapting.
2026 may be the year that organisational structures begin to adapt meaningfully.
Many leaders are entering the year having reflected on how to redesign workflows, decision-making, and business models to better leverage AI’s capabilities. If this structural adoption accelerates, it could finally launch the productivity revolution that the global economy urgently needs. Without such gains, the enormous capital investment deployed into AI risks disappointing investors, increasing the likelihood of a painful correction.
What this means for Australia
Australia, a small and open economy, enters 2026 deeply dependent on global growth and commodity flows. Our export mix (largely iron ore, gas, gold and coal) continues to underpin national income and living standards. But as trade becomes more fragmented and strategic, Australia must navigate this environment with caution.
Like other advanced economies, Australia must begin reorganising its services sector around AI. Australia is unlikely to lead in developing the technology, but it can organise business and infrastructure around it and provide stability and renewable energy to facilitate model training and application for the region.
To lift medium term growth, Australia must also address the same challenge facing many advanced liberal economies: the trade-off between productivity and protectionism. Long-term prosperity will depend on resisting the global drift toward inward looking policy and prioritising competitiveness, skills, and innovation.
