Global economy to weaken in 2026; headwinds for India from US tariffs: WEF

Global economy is entering a period of weak growth and systemic disruption, the World Economic Forum said in its latest Chief Economists' Outlook on Tuesday.

Noting that India has emerged as the fastest-growing major economy and is projected to grow by 6.5 per cent in 2025 by IMF, the report said the country's manufacturing ambitions face headwinds from newly announced US tariffs of 50 per cent on exports, a development that weighs heavily on the regional outlook for entire South Asia.

According to the survey, 72 per cent of chief economists expect global economy to weaken in 2026 amid intensifying trade disruption, rising policy uncertainty and accelerating technological change.

The findings pointed to the emergence of a new economic environment shaped by persistent disruption and growing fragmentation.

Emerging markets are anticipated to be the main engines of growth, with the Middle East and North Africa (MENA), South Asia and East Asia and Pacific seen as bright spots.

One in three chief economists expected strong or very strong growth in these regions.

The outlook for China was more mixed, with 56 per cent of chief economists anticipating moderate growth, though deflationary pressures are expected to persist.

Growth is expected to remain more stagnant in advanced economies.

In Europe, 40 per cent expect weak growth, while most chief economists (52 per cent) anticipate weak or very weak growth in the US.

The chief economists warned that advanced and developing economies are on increasingly divergent growth pathways 56 per cent expect greater divergence over the next three years.

"The contours of a new economic environment are already taking shape, defined by disruption across trade, technology, resources and institutions," said Saadia Zahidi, Managing Director, World Economic Forum.

"Leaders must adapt with urgency and collaboration to turn today's turbulence into tomorrow's resilience," she said.

The report said the global economy is undergoing one of its most turbulent periods in decades, with a convergence of shocks and structural shifts rewriting the rules of growth, trade and governance.

"Evidence of change is everywhere. The US has stepped back from its post-war role as a free-market champion, China is flexing its economic muscle, Germany has abandoned fiscal restraint, India has emerged as the fastest-growing major economy and Japan is navigating sustained inflation for the first time in a generation," it said.

It said growth expectations for South Asia have softened slightly as 31 per cent of chief economists expect strong or very strong growth in the year ahead, down from 33 per cent in April.

The share expecting moderate growth has risen from 55 per cent to 66 per cent.

In India, inflation has eased sharply, creating space for more stable policy settings.

Reserve Bank of India held rates steady in early August, following a drop in consumer price inflation (CPI) to 1.55 per cent in July, the lowest level since 2017 and before CPI readings rebounded to 2.07 per cent in late August.

The government remains committed to a 4.4 per cent budget deficit target and has introduced sweeping changes to the goods and services tax regime, the WEF report said.

Across South Asia, 64 per cent of surveyed chief economists expected moderate inflation over the next year, 74 per cent anticipated no change in monetary policy and 80 per cent expected fiscal policy to remain steady.