“Goldilocks” Baseline But Lingering Risks

A new Citi Research report from a team of economists led by Nathan Sheets concludes that the global economy’s solid performance is likely to continue in 2026 and 2027, despite ample risks. Key reasons for this resilience include a synergy between labor markets and global consumers and technological advances, especially in communications and access to information. The current environment of near-trend global growth, subdued inflation and central-bank easing has been characterized as “Goldilocks,” and we see this performance as likely sustainable.

We see global growth coming in at 2.9% in 2025, nearly matching our estimate of trend, and then edging down to 2.8% this year and next as tariffs continue to work their way through the global economy. At a country level, we see growth likely softening in China, Singapore, Spain and Brazil while coming in somewhat stronger in Poland, Australia, Sweden and South Korea.

While U.S. tariffs imply further headwinds for the global manufacturing sector, global trade and production chains are adjusting surprisingly smoothly: To cite one metric, over the past year China’s share of U.S. imports has declined by more than 5 percentage points, but U.S. import shares with Taiwan, Vietnam, Mexico and Thailand have increased. While Taiwan’s gains largely reflect an upsurge in artificial-intelligence (AI) investment, the other three gainers look well positioned to compete with China and pick up its lost U.S. market share. Even so, China’s overall exports have expanded, with losses to the U.S. more than offset by gains to Asia, the European Union and other countries.

What’s powering global growth?

One engine of global growth has been a synergy between labor markets and the global consumers. Labor markets have stayed firm in recent years, with most countries’ unemployment rates hovering close to pre-pandemic readings and wage growth supportive. As such, aggregate global consumption has generally powered ahead, with particular strength shown by U.S. upper-income consumers even as consumers in China and the euro area have been more cautious.

While we expect continued resilience for the global economy through 2027, we do note ample risks. These include a possible retrenchment in AI, high public-debt levels in many countries, pressures on the independence of the U.S. Federal Reserve, and ongoing geopolitical tensions. Softness in the U.S. labor market could also deepen, creating broader headwinds. That said, these challenges strike us as no more imminent or severe than ones we’ve seen the global economy shake off in recent years.

A deeper question is what underlying factors have supported this resilience; we think technological advances, particularly in communications and access to information, are a big part of the answer. Such gains have allowed firms to respond quickly and smoothly to a large range of shocks; for example, those seeking to reconfigure their supply chains have been able to quickly identify and contact new suppliers while easily comparing their products against production needs.

Inflation and central banks

Global inflation has retreated toward pre-pandemic levels in recent years; it hovered near 2% over the past year, with global core inflation running a bit higher at around 2.5%. Looking ahead, we’re comfortable that global inflation will remain subdued, as global growth isn’t likely to be sufficiently strong to stoke pressures on resources and we expect global oil markets to be generally well supplied, with Brent falling back to $62 a barrel through the year’s second half. That said, we see oil prices as likely to remain volatile, as the oil market tends to take the brunt of geopolitical shocks.

Along with inflation’s decline, many central banks have cut policy rates. Of 27 major central banks, only Brazil and Japan hiked rates last year, while 22 were actively cutting. In 2026 we expect 17 of these central banks to cut rates (including the Fed, the Bank of England and the Bank of Mexico), seven to be on hold (including the European Central Bank and the Reserve Bank of India) and just three (the Bank of Japan, the Reserve Bank of Australia and the Central Bank of Colombia) to raise rates.