IFC Projects 3% Global Economic Growth Next Year... Key Focus on Trump, AI, and Interest Rates

International Finance Center Releases 2026 Global Economic and Financial Outlook
Growth Rate Expected to Slow from 3.1% This Year to 3% Next Year
US to See Modest Rebound While Eurozone and Japan Face Lower Growth
Global Stock Prices to Repeat Corrections and Rallies Amid AI Overvaluation Next Year
Potential for a Weaker Dollar Due to US Growth Slowdown and Interest Rate Cuts

There is a forecast that the global economy will grow by 3% next year, marking a slight slowdown compared to this year. Growth is expected to be dragged down by tariff burdens originating from the United States and weak demand in the Eurozone and China. However, demand and investment in artificial intelligence (AI) semiconductors in major economies are expected to provide support against downward pressure, resulting in continued 'moderate to slow growth.' The key variables that could alter this outlook have been identified as ▲Trump ▲AI ▲interest rates.

Global Growth Rate Projected at 3.0% Next Year... "Global Trade Volume to Be Halved"

On December 1, the International Finance Center presented this outlook during its briefing on the '2026 Global Economy and International Financial Market Outlook.'

The International Finance Center projected the global economic growth rate for next year at 3%, down 0.1 percentage point from this year. The center explained that purchasing power weakened by tariff burdens, shrinking trade, and weak demand in the Eurozone and China will lead to a fifth consecutive year of gradual slowdown. However, the slowdown will be limited due to increasing demand and investment in AI semiconductors.

By country, the United States is expected to rebound slightly from 2.0% this year to 2.1% next year, showing relatively solid growth compared to other regions. The Eurozone (1.3% to 1.1%) and Japan (1.1% to 0.7%) are expected to see lower growth rates. China is also projected to slow further from 4.9% this year to 4.3% next year, but the center noted that if US-China trade tensions ease, China's growth could surpass this forecast.

It is expected that major economies will maintain expansionary fiscal policies next year to stimulate growth. The center also warned that this could highlight concerns about fiscal soundness, increasing the risk of economic side effects such as rising interest rates. Inflation trends are expected to diverge: inflation in the United States, disinflation in the Eurozone, and deflation in China. Monetary policy directions will also differ, with the United States and China maintaining easing, Europe holding steady, and Japan raising rates. However, the scope for policy adjustments is likely to narrow.

As US-originating tariffs begin to be fully reflected in prices next year, the global trade volume is expected to be halved from 3.0% this year to 1.5% next year. In particular, goods trade is projected to drop sharply from 2.4% to 0.5% over the same period. With US tariffs remaining high, the base effect of front-loaded exports to avoid tariffs this year is expected to contribute to a contraction in global trade next year.

Next Year’s Stock Market: Volatility Amid AI Overvaluation Debate... Potential for a Weaker Dollar

Next year, the international financial market is expected to see moderate improvement, based on optimism about a soft landing for the global economy. However, short-term risks such as growth and inflation in major economies, as well as trade tensions, remain.

Global stock prices are expected to repeat the pattern of corrections and rallies seen in the second half of this year, as the AI profit cycle and concerns about overvaluation intersect. US stock prices may be weighed down by slow profitability from AI investments and valuation concerns. Stock markets outside the United States could see the gap in returns with the US narrow, driven by undervaluation and economic stimulus.

The US dollar may remain weak next year due to slowing US growth and interest rate cuts by the Federal Reserve. On an annual basis, the dollar is expected to decline moderately, ending about 2% lower than current levels. However, if the Federal Reserve’s rate cuts are already priced in and economic indicators remain strong, coupled with positive AI-related results, the dollar could bottom out around mid-year and regain strength.

As for major country interest rates, US Treasury yields are expected to see only limited declines despite Fed rate cuts, due to increased bond issuance to finance fiscal deficits and the inflationary impact of tariffs. In major European countries, interest rates could rise slightly due to economic stimulus and pension reform.

Lee Yongjae, President of the International Finance Center, described 2026 as a year to "be mindful of risks even in times of safety."

President Lee stated, "On the surface, a soft landing for the global economy and a moderate improvement in financial markets are expected, but beneath that, numerous risks will accumulate that warrant attention." He added, "In particular, the second-year policies of Trump-such as tax cuts, US economic stimulus, US-China tensions, and Federal Reserve leadership-could have wide-ranging impacts."

He continued, "AI could also affect the real economy through investment and semiconductor supply, and influence the financial market through the profitability of related companies and stock market bubbles. High interest rates in major economies could trigger instability in credit markets, sovereign risk, and vulnerabilities in non-bank financial institutions. These factors are closely linked to stock prices and inflation, making them key variables for financial markets."

President Lee emphasized, "While the outlook for the Korean economy and stock market is generally positive next year, these risks could still have an impact. Strategic thinking and flexible responses are more necessary than ever."

This content was produced with the assistance of AI translation services.