The world economy is holding up – at least the macroeconomic data is, says INSEAD Professor of Economics Antonio Fatas in “The Economic Outlook for 2026” webinar. 

Riding on the momentum of the strong post-Covid economic recovery, turbulences such as the United States’ broad-based tariffs did not have as much effect as expected on last year’s global data. The tariffs were mostly scaled back and, in some cases, trade was rerouted (e.g. from China to Vietnam or Taiwan). 

The tariffs didn’t bring manufacturing jobs back to US shores as President Donald Trump promised. Instead, we’ve seen a slowing US job market, shrinking manufacturing employment and stubborn inflation. Nor did the tariffs narrow the global imbalances. In fact, global imbalances are on the rise, with trading (current account) imbalances inching towards 2008 levels. While this shows that the tariffs haven’t crippled trading, it heralds increasing trade tensions, which are set to stay beyond 2026.

On the positive side, the AI boom has bolstered demand for chips, as well as IT equipment and services. Surging investments in AI and tech helped sustain US GDP growth and markets. Strong stock markets in many economies around the world boosted wealth and consumption.

But Fatas is cautious about the AI-market imbalance risk. Valuations are high and concentrated on the “Magnificent 7”, even when productivity gains from AI, while positive, are still uncertain and probably not as large as some of those valuations indicate.

Business not as usual

Despite stable growth, it was hardly business as usual in 2025. In fact, Fatas calls it an inflection point – in politics and economics. And we’re not going back to where we were before, he adds. The US has withdrawn from the world stage on several fronts and is resorting to “strategic coercion”. The resulting geopolitical shifts have not only changed how countries trade and do business, but also led to the establishment of more blocs, heightened strategic pressure and greater complexity on the world stage.

It might take years or even decades before we reach a new equilibrium. In the meantime, while geopolitical tensions might not be reflected in growth rates in 2026, downside risks do exist and could materialise if a large political shock were to happen. 

The new international order will be more complex for businesses. The repercussions range from having to deal in multiple currencies to the need to establish a more diversified and flexible supply chain. This will come at the cost of efficiency and possibly lower growth.