The global economy is growing more strongly than expected this year, despite rising trade tensions and high uncertainty around US economic policy. Real global GDP is projected to rise 3.1 percent in 2025 and 2.9 percent in 2026, down from 3.3 percent last year. Optimism about artificial intelligence (AI), particularly in the United States, has offset some of the drag from other factors for now. Looking ahead, however, the outlook is fragile and individual economies face different headwinds and risks.
Last spring in the United States, policy changes—especially substantial new tariffs—were expected to weigh heavily on private domestic demand. So far, however, economic momentum has proved more resilient than anticipated. US GDP growth now is projected to moderate to 1.7 percent in 2026 from 1.9 percent in 2025 and 2.8 percent in 2024. The effects of the policy shifts appear to be unfolding only gradually, while optimism about AI has boosted demand.
Economic growth in the euro area remains mixed. In Japan, fiscal stimulus under new leadership should lift growth temporarily in 2026, but the boost is likely to fade as inflation rises and policies subsequently tighten. The United Kingdom continues to experience muted growth amid fiscal restraint, a strong pound, and weak productivity. Among the large emerging-market economies, India and China continue to lead even under tariff pressures. Brazil faces slower growth as tight monetary policy continues to restrain demand. Russia's economy remains weak, held back by low oil prices and financial sanctions.
This PIIE Chart is adapted from Karen Dynan's blog post "Global growth holds up despite policy headwinds and rising risks."
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