Global economic outlook 2026: Growth holds despite mounting pressures

Six months after the closure of the Strait of Hormuz sent energy markets into turmoil, the global economy continues to expand. But supply chains have been strained, strategic stockpiles tapped and global oil demand has fallen. The prolonged disruption and resulting surge in the cost of gasoline, jet fuel, diesel and other fuels have pushed consumer prices higher and added to persistent inflationary pressures across many economies. We expect West Texas Intermediate crude oil to average around US$86 per barrel in 2026 and US$82 per barrel in 2027, with risks tilted to the upside.

Beyond volatile energy markets, policy-driven barriers to trade, persistent geopolitical risks and mounting fiscal pressures in many developed economies are darkening the outlook. Despite these challenges, EDC Economics’ fall 2026 Global Economic Outlook, incorporating information available as of Sept. 16, forecasts global growth of 3% in 2026 and 3.2% in 2027.

U.S. economic outlook: AI investment supports resilient growth

This cautious optimism is most evident in the United States. Consumption has slowed, but consumer spending remains resilient, supported by solid income growth, healthy balance sheets and the benefits of earlier tax cuts. Business investment is also a major source of U.S. resilience, led by spending on infrastructure and data centre technologies related to the artificial intelligence (AI) buildout. Overall, we expect U.S. growth to remain above 2% throughout our forecast period.

Combined with energy-driven pricing pressures, strong economic activity will keep inflation above the U.S. Federal Reserve’s target, leaving the central bank little room to support a softer labour market. We expect the Fed to raise rates once more before the end of the year and again in early 2027, before inflation eases sufficiently.

Persistent inflation and concerns about government debt have pushed long-term U.S. government bond yields sharply higher—a challenge shared by many other G7 economies. The yield on the U.S. 10-year Treasury bond has risen by nearly 80 basis points since the beginning of 2026. As a key benchmark interest rate for the global economy, this increase is pushing up the cost of capital worldwide and putting additional pressure on household and business budgets.

Canada’s economic outlook: Slower growth and trade uncertainty

Canada’s economy continues to lag its larger trading partner, with growth expected to slow to 1% this year before strengthening to 1.7% in 2027. Household spending is holding up better than confidence measures would suggest and exports are benefiting from firm U.S. demand, despite continuing trade policy uncertainty. However, tariff exposure and still-recovering business investment are constraining Canada’s economic performance.

With the economy growing below its potential, weaker demand will help keep inflation in check. We expect inflation to average 2.8% in 2026 and 2.6% in 2027.

Facing subdued growth, ongoing trade uncertainty and more limited inflationary pressure, the Bank of Canada is expected to hold its policy rate at 2.25% through most of 2027. This will lead the Canadian dollar to average roughly 72 cents per U.S. dollar over our forecast period. However, that relatively stable outlook masks the potential for considerable volatility during the period, particularly around negotiations related to the review of the Canada-United States-Mexico Agreement (CUSMA).

European economic outlook: An uneven recovery from the energy shock

Europe remains one of the regions most exposed to the energy price shock and related supply constraints, but the outlook across the region isn’t uniformly weak. More than a year after announcing a significant borrowing and investment package, Germany’s economy is gaining traction as public spending feeds into activity. This will lift our 2026 growth forecast to 0.9%.

In France, by contrast, political uncertainty and stalemate ahead of next spring’s presidential election are thwarting efforts to reduce the government’s sizable budget deficit and keeping private demand soft, resulting in growth of just 0.5% in 2026.

Across the currency union, higher energy costs, trade pressures and uneven fiscal capacity will dampen the recovery. Overall, we expect the Eurozone to grow 0.9% in 2026 and 1.4% in 2027.

China’s economic outlook: Strong exports mask weak domestic demand

In China, exports and industrial production remain strong, supported by competitive prices and the continued redirection of trade. Domestic demand is much weaker, with problems in the property sector, deflationary pressures and cautious household spending continuing to weigh on activity. We forecast growth of 4.7% in 2026 and 4.5% in 2027.

For China’s trading partners, that creates a difficult combination: Strong competition from Chinese goods alongside limited demand from Chinese consumers.

Bottom line: Global growth continues, but resilience has limits

The global economy has shifted from shock to adaptation, but not yet to recovery. Growth remains resilient as households, businesses and supply chains adjust to changing conditions, but those adjustments are becoming increasingly costly.

Elevated energy prices, more restrictive trade policies and higher interest rates are eroding economic buffers and exposing fiscal and financial vulnerabilities. Our base case is for continued global growth and a modest acceleration in 2027, but resilience shouldn’t be mistaken for strength.

This week, special thanks go to Ross Prusakowski, deputy chief economist and director of Country and Sector Intelligence.

As always, EDC Economics values your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them.