The last global economic analysis before Christmas, with the visionary wish that everything will be alright again

Forget normality: This is how fundamentally the global economy will change in 2026

As the world prepares for Christmas 2025 and the desire for peace and normalcy is greater than ever, economic reality paints a picture that defies easy categorization. We are at the end of a year that avoided the anticipated catastrophe, only to usher us into an era of fragile stability. The last major economic analysis before Christmas reveals a world in flux: the major economies have steered clear of recession, but the price is structural cracks that are now becoming glaringly apparent.

The coming year, 2026, will not be characterized by a return to the old normal, but rather by a fundamental realignment of global power relations. While the US, driven by an unprecedented AI boom, threatens to leave the rest of the developed world behind, China is grappling with a historic paradox of strong production and weak consumption. Meanwhile, Europe, and Germany in particular, are undergoing a complete reversal under the pressure of geopolitical realities, a move that was considered a fiscal policy taboo only recently.

But beyond the large figures of the gross domestic product, people feel the change firsthand: labor markets that neither fire nor hire anyone; inflation that is statistically falling but remains noticeable in people's wallets; and a social divide that has widened to such an extent that it threatens political peace.

This analysis is not a pessimistic lament, but a necessary assessment. It looks behind the scenes of the "everything will be alright" rhetoric and shows why hope alone is not a strategy – and why 2026, despite, or perhaps even because of, its challenges, will be the decisive year for setting the course of our economic future. Read here what really lies ahead.

When hope meets harshness: An assessment of the gap between economic reality and political wishful thinking

The global economy is ending 2025 with a curious mix of relief and unease. While major economies have avoided recession and central banks are cautiously backing away from restrictive monetary policies, structural distortions are lurking beneath the surface, extending far beyond cyclical fluctuations. Global GDP is projected to grow between 2.8 and 3.1 percent in 2026, a figure that appears solid but is significantly below the pre-pandemic average. Goldman Sachs forecasts 2.8 percent, while the International Monetary Fund revised its estimate upward to 3.1 percent after the feared escalation of trade conflicts held back in the second half of 2025. But these figures mask a fundamental reshaping of global economic geography, characterized by trade fragmentation, technological disruption, and fiscal exhaustion.

The United States is projected to outperform other developed economies with a growth rate of 2.6 percent, driven by tax cuts, massive investments in artificial intelligence, and a significantly looser fiscal policy compared to Europe. The Federal Reserve has lowered its benchmark interest rate to between 3.5 and 3.75 percent through December 2025 and signals further moderate cuts through mid-2026, with a final rate of 3 to 3.25 percent expected. The American economy is benefiting from an unusual phenomenon: artificial intelligence is already making a measurable contribution to growth, with AI-related capital expenditures contributing about 1.1 percentage points to GDP growth in the first half of 2025, more than private consumption. This marks a structural turning point where technological investment becomes the dominant growth component, while traditional drivers such as consumer spending decline in importance.

China's economic development, however, reveals a paradox that is becoming a stress test for the global economy. The world's second-largest economy is projected to grow by between 4.5 and 4.8 percent in 2026, a slowdown from the 5 percent of the previous year. For the first time in decades, the Chinese government has declared strengthening domestic demand its top economic policy priority, a remarkable admission of structural weakness. The export orientation that has made China successful for four decades is reaching its limits. While Chinese companies continue to flood the global market with high-quality goods at low prices, domestic demand remains precariously weak. The real estate sector, which traditionally accounts for about a quarter of China's economic output, is in a structural crisis that cannot be resolved by even the most generous stimulus measures. The Chinese government is relying on consumption stimuli, higher pensions, and income increases, but household confidence has been fundamentally shaken. China's current account surplus is estimated by Goldman Sachs to rise to almost 1 percent of global GDP, the largest surplus of a single country in documented economic history. This surplus is not an expression of strength, but rather a symptom of an economy that produces what it cannot consume.

Europe, however, is walking a tightrope between fiscal expansion and an inability to implement structural reforms. The eurozone is projected to grow by between 1.1 and 1.6 percent in 2026, with Germany playing a central role. Europe's largest economy is planning its biggest fiscal stimulus package since the 1970s for 2026. A deficit of 4.75 percent of GDP is planned, with more than €100 billion earmarked for decarbonization, infrastructure, and defense. This dramatic shift, long considered unthinkable, reflects the realization that fiscal orthodoxy is becoming a hindrance to growth in a world of increasing geopolitical tensions and massive investment needs. The European Central Bank has left its main refinancing rate at 2.15 percent and its deposit facility at 2 percent, signaling a prolonged pause in further interest rate cuts. ECB President Christine Lagarde speaks of a “good place” where monetary policy has arrived, a phrase that expresses both satisfaction and bewilderment.

Trade wars and mountains of debt: The new fiscal realities

The trade conflicts that dominated the global economy in 2025 have not resolved, but have merely entered a new phase. The average US tariff rate has risen from under 3 percent to almost 17 percent, a level reminiscent of the protectionist 1930s. Yet the feared global recession failed to materialize, partly due to the massive acceleration of exports in the first half of 2025. Companies shipped goods to the US before new tariffs took effect, resulting in distorted trade figures. Global trade growth is projected to plummet to just 0.5 percent in 2026, a dramatic drop from 2.5 percent the previous year. This fragmentation is not temporary, but structural. Supply chains are not simply being rerouted, but fundamentally reconfigured. The “China Plus One” concept has become the new orthodoxy, with Mexico, Vietnam, India, and Eastern Europe benefiting massively as alternative production locations. Nearshoring, once an academic concept, will have become the dominant strategy by 2026. Companies will no longer primarily optimize for costs, but for resilience, even if this puts pressure on margins.

The fiscal situation in major economies is more worrying than public discourse suggests. Global government debt stands at 97.6 percent of GDP, a historic high outside of wartime. The United States was downgraded by Scope Ratings to AA minus with a stable outlook in October 2025, and France also holds an AA minus rating with a negative outlook. Fiscal room is exhausted in most developed economies. Structural spending constraints due to aging populations, rising defense spending, and high interest payments on existing debt leave little room for countercyclical policy. The European Union has built remarkable flexibility into its fiscal rules by creating a national exemption for defense spending. Member states can increase their defense spending by up to 1.5 percent of GDP until 2028 without this being considered a breach of deficit limits. Sixteen EU member states are already using this clause, resulting in additional defense spending of approximately €110 billion. The ReArm Europe Plan mobilizes a total of €800 billion. This is not a temporary exception, but the beginning of a permanent reallocation of public resources from social transfers to security and infrastructure.

The labor market paradox and the rise of AI

Labor markets in developed economies are in an unusual state, characterized as “low-hire, no-fire.” In the US, unemployment stands at 4.4 percent, the highest level since October 2021, despite moderate economic growth. The hiring rate has fallen to levels last seen during the early stages of the pandemic and after the global financial crisis. Job seekers are taking an average of 20 weeks longer to find employment than they did in 2023. At the same time, companies are hesitant to lay off staff, fearing they will not be able to find qualified personnel in an uncertain environment. The healthcare sector now accounts for 47.5 percent of total job growth, an extreme concentration that underscores the fragility of the labor market. Should this sector falter, it would dampen overall employment momentum. The Federal Reserve projects unemployment will rise to 4.5 percent by early 2026 before a slight easing. A similar picture is emerging in Europe. The unemployment rate in the United Kingdom stands at 5.1 percent, a four-year high. Germany does not expect a dramatic improvement in its labor market despite its massive fiscal stimulus program.

The role of artificial intelligence in the global economy reached a turning point in 2025. What was previously considered a speculative future technology is now measurably contributing to economic growth. Private AI investments in the US amounted to $109.1 billion in 2024, roughly twelve times more than in China and twenty-four times more than in the UK. These investments are flowing not only into model development but increasingly into supporting infrastructure such as data centers, power supplies, and network expansion. The long-term productivity effects are difficult to quantify, but economic modeling suggests that AI could boost GDP by around 12 percent in the long run, far more than the immediate effect of 3 percent. The peak in productivity gains is expected around fourteen years after widespread adoption, meaning that the greatest effects will not become visible until the 2030s. In the short term, however, a paradoxical situation emerges: AI increases GDP without proportionally increasing employment. The US will experience solid economic growth in 2025, coupled with weak employment, partly due to AI-driven productivity gains. This trend will intensify in 2026, raising fundamental questions about the distribution of economic gains.

Inflation trends and the divergence of emerging markets

Inflation, which dominated the economic policy agenda in 2022 and 2023, has calmed down but remains more persistent than central banks had hoped. Globally, inflation is expected to fall to 3.6 percent in 2026, after reaching 4.2 percent in 2025. In the US, a decline from 3.2 percent to 2.8 percent is anticipated, and in the eurozone from 2 percent to 1.9 percent. These figures are close to central bank targets of 2 percent, but core price inflation, which excludes volatile energy and food prices, remains more persistent. In the US, inflation is expected to rise to 3.5 percent in the fourth quarter of 2025 before falling back to 2.8 percent in the fourth quarter of 2026. This U-shaped trajectory reflects the temporary price pressure from tariffs, which eases in the second half of 2026. Turkey remains an extreme outlier, with inflation rates projected at 31.4 percent in 2025 and 18.5 percent expected in 2026, driven by the dramatic depreciation of the lira. Central banks find themselves in a complicated position. The Federal Reserve is cutting interest rates cautiously, fearing that overly aggressive easing could destabilize inflation expectations. The ECB, on the other hand, is holding back, seeing inflation close to its target and deeming further cuts unnecessary. Emerging markets present a more nuanced picture, with Brazil, Mexico, India, and South Africa expecting continued interest rate cuts as their real interest rates remain positive.

Emerging markets will experience a period of divergence in 2026, breaking with historical patterns. While average growth is around 3.5 to 4 percent, dramatic differences lie beneath the surface. India is projected to grow at 6.2 percent, positioning itself as the clear winner. The country benefits from favorable demographics, massive infrastructure investments, and the diversification of global supply chains away from China. India's digital infrastructure is remarkably advanced; in 2023, the country processed approximately 46 percent of all global real-time payments. The "China Plus One" strategy of global companies is driving manufacturing investment in India, Vietnam, and Mexico. Goldman Sachs expects returns of 13 to 16 percent on equity investments in emerging markets, significantly higher than in developed markets. However, these opportunities are unevenly distributed. Brazil faces presidential elections in October 2026, which could potentially bring about a shift in economic policy. China, Brazil and Russia are dragging down the average of emerging markets, while India, parts of Southeast Asia, North Africa and Eastern Europe are growing at an above-average rate.

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Geopolitics, consumer behavior and corporate profits

Geopolitical risks remain at a level that complicates long-term planning and increases risk premiums. The conflict between Russia and Ukraine shows no signs of a lasting solution. Negotiations are underway, but the positions remain irreconcilable. Russia demands the demilitarization of Ukraine, while Ukraine and Europe consider a militarily strong Ukraine necessary for regional stability. Attacks on critical infrastructure on both sides are expected to intensify in 2026. Europe is increasingly exposed to Russian gray-zone operations targeting critical infrastructure and security facilities. In the Middle East, the ceasefire in Gaza remains fragile, and Israel continues military operations in Syria, Lebanon, and the West Bank. Elections in Israel in October 2026 add further uncertainty. The economic impact of these conflicts is not immediately catastrophic, but it increases the transaction costs of international business, intensifies insurance and logistics, and leads to defensive investment decisions. Companies are holding onto cash, postponing long-term projects, and favoring short-term, flexible strategies.

Consumers in developed economies present a mixed picture, exhibiting both statistical resilience and psychological caution. In the US, consumer spending remains robust, driven by an upper income bracket that accounts for more than half of all expenditures. Fifty-seven percent of consumers are actively seeking deals, a 23 percentage point increase year-on-year. Spending behavior has become strategic: people are cutting back in some categories to spend more in others that are important to them. High-priced experiences such as cruises, concerts, and sporting events remain in demand, while private labels are gaining ground over premium brands for everyday goods. In Germany, the picture is more dramatic. Consumer confidence has plummeted to minus 26.9, the lowest reading since April 2024. German households' savings rate has reached a seventeen-year high, a reaction to fears of inflation and uncertainty surrounding pension reforms. This is a problematic development for an economy that relies on consumption to translate its massive fiscal stimulus program into growth. The Christmas season in 2025 was disappointing, and the start of 2026 indicates continued consumer restraint.

Corporate profits are developing remarkably robustly despite multiple uncertainties. The S&P 500's net profit margin reached a record high of 13.1 percent in the third quarter of 2025, the highest since records began in 2009. A further increase to 13.9 percent is expected for 2026, well above the ten-year average of 11 percent. This apparent contradiction to challenging conditions is explained by aggressive cost reduction, automation, and strategic pricing. Since the pandemic, companies have fundamentally adjusted their cost structures, consolidated office space, streamlined workforces, and invested in efficiency-enhancing technologies. The margin increases are not concentrated in individual sectors but are evident across industries, suggesting systemic efficiency gains. The financial sector, technology, and utilities are experiencing the largest margin increases. This raises fundamental questions about the distribution of economic gains. Growing margins with stagnant wages mean that the fruits of productivity growth are primarily flowing to capital owners.

Structural change: Supply chains, real estate and the climate economy

The transformation of global supply chains from efficiency to resilience will be largely complete by 2026. Fifty-five percent of companies will cite economic volatility as their greatest risk, followed by tariffs and trade barriers at 48 percent and geopolitical instability at 38 percent. Multi-sourcing and geographic diversification will have become standard practice. The just-in-time concept will be obsolete; companies will maintain higher inventories and build redundant capacity. This will increase production costs but also enhance resilience to shocks. Nearshoring will consolidate as the dominant strategy. For US companies, this means relocating production to Mexico; for European companies, to Eastern Europe. Chinese companies will invest heavily in Southeast Asia to circumvent tariff barriers. These relocations are not short-term tactical adjustments but long-term strategic realignments with corresponding capital investments in factories, infrastructure, and training.

The real estate sector is showing strongly divergent trends across regions. In the US, the National Association of Realtors forecasts a 14 percent increase in home sales for 2026, driven by slightly declining mortgage rates and a growing housing stock. The average mortgage rate is expected to fall from 6.6 percent to 6.3 percent, which would give approximately 5.5 million additional households access to homeownership. House prices will rise moderately by 2 to 4 percent, a significant slowdown compared to previous years. The market is moving from a seller-friendly to a balanced state, in which neither buyers nor sellers have structural advantages. Twenty-two US cities are expected to see price declines, concentrated in regions that experienced excessive price increases during the pandemic. In China, however, the housing crisis is deepening. Despite massive government intervention, house prices remain under pressure, and buyer confidence is fundamentally shaken. The real estate sector, which traditionally accounts for a quarter of China's economic output, is shrinking structurally, counteracting efforts to stimulate domestic demand.

Climate economics will enter a phase in 2026 where economic damage is no longer hypothetical but quantifiable in reality. Scientific studies estimate that global economic output will be 17 percent lower by mid-century than it would have been without further climate change, amounting to $32 trillion in losses. This damage will disproportionately affect poorer regions, exacerbating existing inequalities. At the same time, investments in the energy transition are accelerating. Global energy investments reached approximately $3.3 trillion in 2025, of which $2.2 trillion was for clean energy technologies. Two-thirds of every dollar invested is already going toward renewables, electric vehicles, grids, storage, and efficiency measures. Europe is planning significant fiscal support for climate and infrastructure, with Germany allocating over €100 billion for decarbonization. Electricity consumption is rising dramatically due to data centers, electrification, and artificial intelligence, increasing the urgency of expanding renewable energy capacity. Energy independence has become a strategic priority, especially in Europe and Asia, where the need to reduce dependence on imported fossil fuels is being addressed.

Societal fault lines: Inequality and mental health

Social inequality is reaching dimensions that threaten political stability. The World Inequality Report 2026 starkly reveals that the top 0.001 percent of the world's population—fewer than 60,000 multimillionaires—possess three times more wealth than the bottom half of humanity combined. Within almost every region, the top one percent holds more wealth than the bottom 90 percent. Average education spending per child in sub-Saharan Africa is just €200, compared to €7,400 in Europe and €9,000 in North America—a ratio of one to forty, roughly three times the gap in per capita GDP. These disparities cement a geography of opportunity that exacerbates and perpetuates global wealth hierarchies. The gender pay gap persists: women worldwide earn only 61 percent of what men earn per hour, excluding unpaid work. When unpaid domestic work and caregiving are included, this figure drops to 32 percent. In every region, women work more hours than men when unpaid work is taken into account. Political systems in Western democracies have fragmented. Traditional class-based voting patterns, in which low-income earners voted left and the wealthy voted right, have broken down. Highly educated but low-income voters tend to lean left, while less educated but higher-income voters tend to lean right. This fragmentation makes it difficult to form broad coalitions for redistribution. Progressive taxation collapses at the top: centimillionaires and billionaires often pay proportionally less tax than the majority of the population.

Mental health in the workplace has evolved from a fringe issue to a key productivity driver. Generation Z, representing a growing share of the workforce, explicitly prioritizes mental health when choosing an employer. Eighty percent of Gen Z employees in Hong Kong prefer hybrid work arrangements, a preference that is gaining traction globally. Companies are moving away from traditional employee assistance programs toward comprehensive mental health solutions that prioritize high-intensity care, outcome-based measurement, and digital access. The fragmentation of work and personal life caused by hybrid models leads to new stressors, with isolation and blurred boundaries being common problems. Companies that ignore mental health are losing out in the competition for talent. The business case for investing in mental health is now empirically proven: lower absenteeism, higher productivity, and reduced employee turnover more than justify the costs.

Regulation, demographics and digital transformation

The regulation of cryptocurrencies and digital assets will reach a stage of convergence in 2026. The European Markets in Crypto-Assets Regulation (MiCA) will come fully into force, setting standards for crypto-asset servicers, stablecoin issuers, and market abuse controls. The US has established a framework through the GENIUS Act and the CLARITY Act, subjecting stablecoins to standards similar to those of traditional financial instruments. The OECD-led Crypto-Asset Reporting Framework will enable the exchange of information between tax authorities from 2027 onwards. This regulatory clarity reduces arbitrage opportunities between jurisdictions and integrates crypto into the traditional financial system. Maturing regulation is attracting institutional investors who have previously been deterred by legal uncertainty. Stablecoins and central bank digital currencies are gaining in importance, with Hong Kong establishing a dedicated licensing regime for stablecoin issuers. Bitcoin remains the market anchor, while DeFi platforms are increasingly subject to regulatory oversight.

The aging of the workforce in developed economies and China represents one of the most fundamental economic challenges of the coming decades. The proportion of workers aged 55 to 64 has doubled since 2000. The size of the working-age population is projected to shrink by up to 10 percent in several countries by 2050. An older and smaller workforce means lower economic output, slower growth, exacerbated labor shortages in critical sectors, and reduced tax revenues. China has raised the retirement age for men from 60 to 63 and for women from 55 to 58 to address the demographic crisis. Labor market participation among older workers has increased, but many leave the workforce prematurely. Labor market dislocations hit older workers particularly hard: they are unemployed for longer periods, less likely to find new employment, and suffer greater wage losses. The productivity of older workers is ambivalent: experience is juxtaposed with declining physical and cognitive abilities. Adaptability to new technologies, especially AI, varies considerably. Age discrimination remains a significant barrier.

ESG reporting has evolved from a voluntary best practice to a regulatory necessity. The EU's Corporate Sustainability Reporting Directive requires large, publicly listed companies to provide detailed disclosures on environmental, social, and governance (ESG) aspects of their operations. This information must be treated with the same rigor as financial information, a paradigm shift that moves ESG from the PR department to the boardroom. Investors are increasingly demanding robust ESG data to inform capital allocation decisions. Companies with strong ESG programs, transparent reserves, and secure operations are better positioned, as regulators favor licensed, well-regulated platforms. While compliance costs are rising, this creates barriers to entry for less capitalized players. Growth areas include tokenized assets, regulated DeFi infrastructure, on-chain proof of identity, and cross-border payment solutions that comply with the new reporting and disclosure rules.

By 2026, digital transformation will accelerate beyond mere technology adoption to a fundamental reorganization of business models. Generative AI, hyperautomation, edge computing, digital twins, and quantum computing will evolve from pilot projects to production systems. Ninety percent of inter-company business transactions could be initiated and executed by autonomous AI systems by 2028, representing a cumulative business volume of over $15 trillion, entirely administered by machines. Zero-trust security architectures will become the standard, as traditional perimeter security becomes obsolete in hybrid and cloud environments. 5G networks and their successors will enable massive IoT device connectivity and ultra-reliable, low-latency communication. AIOps will revolutionize IT operations through real-time data analytics, predictive fault detection, and automated performance optimization. Low-code and no-code platforms will democratize software development, allowing business users to build applications without in-depth programming knowledge. These trends reinforce each other and create an ecosystem in which technological competence becomes a matter of survival.

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The energy dilemma and the need for reform

The energy transition will reach a critical juncture in 2026, where ambitious goals clash with physical and economic realities. The 1.5-degree target of the Paris Agreement has become virtually unattainable; at current emission rates, the carbon budget will be exhausted in less than four years. Continuing current policies would lead to warming of approximately 2.8 degrees, and even the most optimistic scenarios, with full implementation of all conditional national contributions, would only achieve 1.9 degrees. Emissions in 2024 rose four times faster than the average of the 2010s, comparable to the 2000s. Nevertheless, investments in renewable energy are accelerating. The share of renewables in electricity generation is growing rapidly, driven by falling costs and regulatory pressure. Data centers for AI and data storage are becoming dominant electricity consumers, paradoxically creating both strain on grids and incentives for investment in renewable capacity. Power purchase agreements with technology companies are financing large solar and wind farms. Offshore wind, energy storage, and green hydrogen are evolving from niche technologies into scalable solutions. The challenge lies not in the technology itself, but in the speed of implementation and the political will to overcome fossil fuel interests.

The global economy stands at a crossroads in 2026, where short-term stabilization and long-term transformation collide. Avoiding a recession after years of multiple shocks is an achievement that should not be underestimated. Yet this stability is fragile and has come at a high price. Fiscal room is exhausted, debt is at historic highs, geopolitical tensions remain unresolved, and social inequality is at levels that destabilize political systems. The hope that everything will simply go back to normal is nothing more than wishful thinking. The structural distortions that have built up over the past few years require fundamental reforms that are politically difficult to implement. The fragmentation of world trade is not temporary but marks a new era of economic nationalism. The concentration of wealth and income at the top of the distribution is not the result of unavoidable market forces but reflects deliberate political decisions about tax systems, regulation, and social transfers. The climate crisis is accelerating, while the political will for drastic measures is lacking. Technological progress, especially AI, promises increases in productivity, but without institutional mechanisms for the fair distribution of these gains, there is a risk of further polarization between capital and labor.

Central banks have largely exhausted their conventional and unconventional instruments. Further interest rate cuts may provide short-term growth impetus, but they do not solve structural problems such as weak productivity, shrinking labor forces, or fragmented supply chains. Fiscal policy is under pressure from competing priorities: aging societies demand higher healthcare and pension spending, geopolitical tensions require defense investment, the climate crisis demands massive infrastructure spending, and deficits must be reduced. This squaring of the circle is mathematically impossible; politically, compromises will be necessary that will satisfy no one. The global economy will grow in 2026, but this growth will be unevenly distributed, robust in some regions, barely noticeable in others. The system's resilience is remarkable, but it should not be confused with health. An organism that functions only through permanent stimulation is not healthy, but dependent. The vision of everything being all right again implies a return to a previous state, but that state was itself problematic, characterized by unsustainable imbalances that eventually erupted. Moving forward does not lead backward, but rather, through painful adjustments, to a new equilibrium whose contours are still blurred.

Outlook: Beyond Illusions

The growth of emerging markets offers a glimmer of hope, but even here, successes are unevenly distributed. India, Vietnam, and parts of Africa are showing dynamic growth, but countries embroiled in conflict or suffering from autocratic mismanagement are falling behind. Differentiation within the group of emerging economies is increasing, and the concept of a homogeneous bloc is losing its significance. China, once the engine of global expansion, is grappling with structural problems that no amount of generous economic policy can solve. China's current account surplus is symptomatic of an economy that produces more than it can consume—a fundamental imbalance with global consequences. Europe faces the challenge of catching up on decades of neglected investment while simultaneously facing an aging population and a persistently uncertain geopolitical landscape. Germany is undertaking a remarkable course correction with its massive fiscal program, but whether this stimulus will be sufficient to resolve the structural problems remains to be seen.

Labor markets are in a state of tense stagnation. Companies are not hiring because they are uncertain about the future, but they are also not laying off employees because they don't want to lose skilled workers. Job seekers remain unemployed longer, and mobility between jobs is decreasing. This situation is unsustainable. Either the uncertainty dissipates and hiring increases again, or the uncertainty manifests itself in real shocks that force layoffs. The status quo of "low-hire, no-fire" is a temporary equilibrium, not a stable state. Artificial intelligence is changing the structure of labor markets faster than public discourse is acknowledging. Routine tasks, both physical and cognitive, are becoming increasingly automated. The ability to interact with and control AI systems is becoming a key skill. Without massive investments in retraining and further education, structural unemployment threatens, exacerbating social tensions.

Trade conflicts haven't plunged the global economy into recession, but they have made it more fragmented, inefficient, and expensive. Supply chains have become longer, more complex, and more redundant. This may increase resilience, but it reduces efficiency. The gains of globalization, which fueled growth for decades, are being partially reversed. Protectionism may help certain industries in the short term, but in the long run, it makes everyone poorer. The tariffs imposed in 2025 act like a consumption tax, primarily affecting poorer households. The political economy of protectionism is perverse: concentrated gains for a few producers versus diffuse costs for many consumers. The concentrated interests are politically mobilizable, while the diffuse costs remain invisible in statistics. Only when these costs become apparent, when inflation caused by tariffs becomes noticeable, will there be political pressure to reverse course. But by then, the damage will have been done.

The climate crisis is the greatest long-term threat to economic stability, yet it is repeatedly overshadowed by short-term crises. Damage from extreme weather events is measurably increasing; droughts, floods, and heat waves are impacting agriculture, infrastructure, and health. Adaptation costs rise exponentially the longer decisive action is delayed. Investments in renewable energies are impressive, but they are not yet replacing fossil fuel capacity quickly enough. Electricity consumption is increasing faster due to electrification and digitalization than renewable energy capacity is being added. Paradoxically, this is extending the lifespan of fossil fuel power plants that should actually be decommissioned. The energy transition is a technical, economic, and, above all, political challenge. Fossil fuel interests are powerful, well-connected, and aggressively defend their position. Without regulatory pressure and clear CO2 prices, the transformation will remain too slow.

Social inequality is not only a question of justice, but also of economic efficiency. Extreme wealth concentration leads to weak demand, as the wealthy consume a smaller share of their income. Investments in education and healthcare for poorer segments of the population would yield high social returns, but are underfunded. The political polarization fueled by inequality makes rational policymaking more difficult. Populist movements, both left and right, are primarily symptoms of economic insecurity and perceived injustice. Without substantial redistribution and investment in public goods, this polarization will increase. Tax progressivity collapses at the top, capital gains are taxed at a lower rate than earned income, and tax havens enable legal tax avoidance. These structures are not natural but politically created and can be changed politically. However, this requires political will, which is hampered by the fragmentation of the electorate.

The mental health crisis is a silent pandemic with enormous economic costs. Burnout, depression, and anxiety disorders reduce productivity, increase absenteeism, and drive up healthcare costs. Companies that ignore this are losing out in the competition for talent. Generation Z explicitly articulates its needs and chooses employers based on their mental health support. Hybrid work models offer flexibility but also create new burdens through isolation and blurred boundaries between work and private life. The digitalization of work enables global collaboration but also generates constant availability and information overload. Without institutional boundaries and clear expectations regarding availability, digital work risks becoming a permanent strain. Investing in mental health is not a luxury but an economic necessity in knowledge-intensive economies.

One last warning before the festival

The global economy at the end of 2025 is more resilient than many feared, but more fragile than most hope. The vision that everything will be alright again is naive at best, and dangerous at worst, as it delays necessary adjustments. The structural problems that have built up over decades will not be resolved by wishful thinking or temporary stimulus measures. What is needed are fundamental reforms in tax systems, social policy, trade, climate policy, and governance. These reforms are politically difficult because they challenge established interests and require short-term costs for long-term gains. But the alternative, muddling through with the status quo, leads to a gradual erosion of economic and social stability, eventually resulting in uncontrolled collapses.

The hope before Christmas 2025 that everything will be better in the coming year is understandable, but not supported by economic fundamentals. The year 2026 will bring challenges that demand adaptability, political courage, and international cooperation. The fragmentation of the global economy will continue, geopolitical tensions will not disappear, the climate crisis will worsen, and social tensions will increase unless substantial steps are taken to reduce inequality. However, there are also opportunities. Technological progress, particularly in artificial intelligence and renewable energies, offers potential for productivity gains and decarbonization. Emerging markets, especially India and parts of Southeast Asia, are showing dynamic growth. Europe is attempting to break out of stagnation with Germany's fiscal program. The US is demonstrating economic resilience despite political polarization.

The question is not whether the global economy will grow in 2026; it will, albeit moderately. The question is who will benefit from this growth, whether it is sustainable, whether it strengthens or weakens social cohesion, and whether it lays the foundations for long-term prosperity or exacerbates existing inequalities. The answers to these questions depend on political decisions made in parliaments, governments, and international organizations. Economics provides the analytical tools and identifies courses of action, but the choice between these options is political. The visionary desire for a turnaround must be translated into concrete policy measures, progressive tax systems, investments in education and infrastructure, and international cooperation to address shared challenges such as climate change and pandemics. Without this translation, the desire remains what it is: a hope without foundation, a comfort without effect, an illusion that obscures reality. The economic analysis before Christmas 2025 cannot end with celebratory messages because the data simply don't support it. It can only end with an appeal: The challenges are known, the instruments are available, the time to act is now, before the fragility of the system escalates into open crises that leave no choice.

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