Gain and pain will battle for leading role in 2026

The world economy is making a surprising habit of shrugging off unpleasant shocks. Since 2020, the planet has weathered a global pandemic, inflation, sharply rising interest rates, and the outbreak of war without a major slump. In 2025, a tsunami of enthusiasm about artificial intelligence offset the disruptive effects of US President Donald Trump's trade turmoil, keeping economies and financial markets humming. Opposing forces are preparing to battle for supremacy again in 2026. The stage is set for a turbulent contest between gain and pain.

The incredible resilience of global commerce and finance was on full display after Trump returned to the Oval Office in early 2025. He quickly delivered the tariff shock that many had assumed was an elaborate bluff, took a chainsaw to Washington bureaucracy, alienated close US allies, and attacked the independence of the Federal Reserve. Yet an extraordinary splurge of investment in data centres and other AI-related infrastructure, combined with the confidence-boosting powers of a rising stock market, proved a more potent economic force, again defying predictions of an inflation shock or a downturn.

Indeed, occasional observers of financial markets could be forgiven for not noticing much change. In the final weeks of 2025, the yield on 10-year US Treasury bonds was hovering around 4 percent – slightly lower than at the time of Trump's re-election a year earlier. The S&P 500 Index had gained roughly 15 percent, even as it underperformed equity benchmarks in Seoul, Hong Kong, Tokyo, Frankfurt, Rome and even London. A weaker dollar and soaring gold price were the only visible reminders of cracks in the financial order.

The year ahead promises to be another heavyweight wrestling match. In one corner is the world economy, which most forecasters expect will keep growing steadily, helped by the stimulus provided by Trump's Big Beautiful Bill, the promise of lower interest rates, continued AI spending, and possible peace in Ukraine.

In the other corner lies a gang of disruptive risks. These include disillusionment over AI, Trump installing an easy-money sycophant at the Fed, dysfunctional politics across the West, creaking corporate credit, an increasingly confident China and Russia, and the ever-present possibility of financial gravity reasserting itself over historically high equity valuations.

This is the uncertain backdrop against which Breakingviews columnists embarked on their annual exercise of making predictions for the year ahead. It is not a dry forecasting exercise but an attempt to sketch out some thought-provoking and perhaps unexpected scenarios that might materialise in 2026.

Though the primary goal is to be interesting rather than 100 percent accurate, some of our calls for 2025 came good. Trump faced an early showdown with the bond markets, but backed down when the tariff-induced selloff proved too sharp. Germany's new chancellor relaxed the country's debt brake. Mike Henry, the boss of mining giant BHP, briefly renewed his interest in rival Anglo American. Google owner Alphabet splashed out $32 billion on cybersecurity firm Wiz, as foretold by our columnists.

Other predictions proved wide of the mark, or at least premature. OpenAI did not launch an IPO in 2025, though the inventor of ChatGPT remains a strong contender for a stock market listing. Intel did not succumb to a takeover but did welcome the US government as a shareholder. And while California did not secede from the Union, Governor Gavin Newsom emerged as a robust critic of Trump's administration.

Heading into 2026, the world economy is benefiting from several powerful following winds. The US government is still in stimulus mode. The AI investment bonanza continues and is spreading to previously dull utilities. Thousands of fans from around the planet are due to attend soccer's World Cup – assuming Trump lets them in. Provided inflation does not pick up – a big if – interest rates can fall further, helping bond investors overcome their misgivings about government debt. (Japan will once again be the exception.)

Other positive impulses will be China's crackdown on irrational competition and overcapacity, which should shore up corporate profits in the world's second-largest economy. Resurgent corporate dealmaking could deliver the largest-ever M&A transaction. The markets for liquefied natural gas and battery technology are heading for oversupply, to the delight of buyers. For purveyors of private credit, the biggest threat is less of corporate blowups than a future of more humdrum returns.

Yet many lurking dangers could derail this optimistic scenario. Increased state meddling in business is inevitable, with Boeing a strong candidate to become the next ailing American corporate champion to receive a US government investment. Excessive speculation in cryptocurrencies and rampant self-dealing by Trump's family and members of his administration could combine to deliver a government bailout of digital tokens. A ceasefire in Ukraine will only embolden Russian President Vladimir Putin, who will test the North Atlantic Treaty Organization's resolve, in turn spurring mergers among defence contractors.

Meanwhile, 2026 is shaping up to be a pivotal year for AI. Chatbot innovation will stimulate the development of devices that respond to the human voice, rather than the swipe of a thumb. The excitement may tempt Marc Andreessen, whose IPO of Netscape defined the dotcom frenzy of the 1990s, to repeat the trick by seeking a stock market listing for his venture capital firm.

But self-teaching computers will also inflict pain. The technology will turn prospective students away from college degrees, while lawyers will have a field day litigating the many ways in which large language models have infringed intellectual property. Oracle boss Larry Ellison's aggressive debt-fuelled attempt to join the Big Tech gang will backfire. And if the investment boom fizzles, new entrepreneurs will emerge to dream up imaginative new uses for all those data centres.

As in previous years, the latest crop of predictions doubtless includes misses as well as hits. But the process of trying to peer beyond the consensus remains stimulating, and hopefully entertaining. As the world throws up new and unforeseen shocks and surprises, Breakingviews will be here to help make sense of it all.