Global growth to hold steady in 2026, but risks are rising -Oxford Economics

Global growth proved more resilient than expected in 2025, holding steady at around 2.8% despite political and trade uncertainty following Donald Trump’s return to the White House, according to Oxford Economics’ 2026 global outlook. Looking ahead, the global economy faces a set of intertwined challenges — from shifting trade dynamics to the uncertain path of AI investment and fiscal policy.

Trade tensions are entering a new phase: After a year dominated by tariff hikes, the focus in 2026 is shifting toward their long-term ripple effects. The US economy is likely to remain relatively insulated, supported by strong household spending and looser fiscal policy. But higher tariffs are expected to weigh on imports, limiting the extent to which US demand can lift global trade. China, on the other hand, is doubling down on manufacturing-led growth and boosting exports even under heavy tariff pressure — a trend that’s driving down global prices and increasing competition in advanced economies. As Chinese exporters move further up the value chain, deflationary pressures are set to hit manufacturers in Europe and North Asia hardest.

AI could either steady or shake global growth: AI investment has been one of the biggest drivers of growth throughout 2025, cushioning the US economy and fueling demand across Asia’s semiconductor and tech sectors. But 2026 could be more volatile, as analysts see room for another surge in AI-related capital spending that could push US GDP growth as high as 3%, compared to a baseline forecast of 2.3%. Still, the boom is entering a riskier phase as financing shifts from banknotes to debt. A sudden correction could slow the US growth to below 1%, with global spillovers to follow.

Fiscal policy takes center stage: While interest rate cuts will continue at a measured pace, they’re unlikely to have a major impact on global growth in 2026. Fiscal policy, not monetary easing, will be the key driver. Despite concerns about debt sustainability in the US, UK, and parts of Europe, governments are expected to keep spending relatively loose, with a slightly positive global fiscal impulse led by China. The bigger risk is not tightening, but rather fiscal expansion — particularly if major economies opt to support growth through higher spending.

Global GDP growth is expected to remain around 2.7% next year — steady overall but uneven across regions. The US is set to remain the outlier, supported by fiscal spending and AI investment. China’s growth is expected to stabilize, though at the cost of intensifying competition for manufacturers elsewhere. Europe and Japan will continue to lag as long-term structural challenges persist. Behind the stable headline numbers, 2026 will see deeper global imbalances and different paths for major economies.

MARKETS THIS MORNING-

Asian markets are firmly in the green this morning with indices riding the tech-driven rally on Wall Street. Japan’s Nikkei is leading gains, up 2.0%, with the Kospi trailing behind, up 1.9%. The Shanghai Composite and Hang Seng are looking at more modest gains.

THE CLOSING BELL-

The ADX fell 0.1% yesterday on turnover of AED 1.4 bn. The index is up 3.6% YTD.

In the green: Abu Dhabi National Takaful Co. (+15.0%), Oman & Emirates Investment Holding Co. (+14.8%) and Abu Dhabi National Hotels Co. (+5.0%).

In the red: E7 Group PJSC Warrants (-9.6%), Phoenix Group (-4.7%) and Hayah Ins. Company (-3.2%).

Over on the DFM, the index fell 0.1% on turnover of AED 484.5 mn. Meanwhile, Nasdaq Dubai was down 0.3%.

CORPORATE ACTIONS-

Salama board signs off on capital-reduction and sukuk steps: Islamic Arab Ins. Company (Salama) approved the documentation it needs to submit to the Securities and Commodities Authority to execute its planned capital reduction, and gave in-principle approval to issue mandatory convertible sukuk, which will be converted into new shares, according to a DFM disclosure (pdf). The board set a fixed conversion price of AED 0.46, approved a 12-month lock-up on shares issued upon conversion, and cleared the creation of an ADGM special-purpose vehicle to issue the sukuk.

REMEMBER- A two-step solvency plan is in motion: In October, Salama scheduled its share-capital reduction to AED 483 mn, down from AED 939.6 mn, for 8 December, cancelling roughly 456.8 mn shares to offset accumulated losses. The company also approved an AED 175 mn mandatory convertible sukuk to strategic investors as the second step in restoring solvency and meeting Central Bank capital requirements.