Trade tariffs, cost of living among top five risks to global growth for the year ahead

Trade tariffs, cost of living among top five risks to global growth for the year ahead - World Economic Forum. (Photo: File)

IMF projects global economic growth will slow to 3.1 per cent in 2026 from 3.5 per cent in 2025, with geopolitical tensions, energy market disruptions and trade uncertainty threatening to undermine recovery.

Rising trade tariffs and persistent cost-of-living pressures are among five major threats expected to weigh on global economic growth over the coming year, economists have warned.

This, as mounting public debt, higher borrowing costs and uncertainty surrounding Artificial Intelligence further complicate the outlook.

The risks are highlighted in the World Economic Forum’s (WEF) September 2026 Chief Economists’ Outlook and the International Monetary Fund’s (IMF) October World Economic Outlook.

Notably, the IMF projects global economic growth will slow to 3.1 per cent in 2026 from 3.5 per cent in 2025, with geopolitical tensions, energy market disruptions and trade uncertainty threatening to undermine recovery.

Trade restrictions remain a key concern as governments increasingly turn to tariffs to protect domestic industries and reduce reliance on foreign goods.

Although businesses have redirected shipments to alternative markets to cushion themselves against new trade barriers, economists warn that higher tariffs could increase production costs, disrupt supply chains and weaken cross-border commerce.

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The IMF projects global trade volume growth will ease to 2.6 per cent in 2026 from 3.6 per cent in 2025, reflecting the impact of trade tensions and changing trade policies.

The second major threat is the persistent cost-of-living crisis, which continues to erode household purchasing power even in economies where inflation has moderated.

Economists reckon that high food, energy and transport costs accumulated over recent years have left households struggling to meet essential expenses.

Renewed disruptions to oil supplies and shipping routes amid geopolitical tensions could further increase the cost of fuel and goods.

The pressure is particularly severe for lower-income households, which spend a larger share of their earnings on necessities.

Prolonged increases in living costs could also fuel public discontent and force governments to introduce expensive relief measures.

Rising borrowing costs present another challenge, with government bond yields climbing in major economies amid renewed inflation concerns and questions over fiscal sustainability.

Higher yields make it more expensive for governments to finance infrastructure, public services and social programmes, while tighter global financial conditions could increase borrowing costs for developing economies.

The situation is compounded by mounting public debt as governments allocate more resources to defence, healthcare, pensions and other competing priorities.

Heavy debt obligations risk limiting their ability to respond to future economic shocks.

Artificial Intelligence completes the list of major concerns.

While investment in AI could boost productivity and transform industries, economists remain uncertain about its impact on employment and the distribution of economic gains.

The expansion of data centres and related infrastructure requires substantial investment and electricity, yet may generate fewer jobs than traditional economic sectors.

Workers displaced by automation could also struggle to transition into new roles.

Together, the five risks present a difficult policy balancing act for governments seeking to sustain growth while controlling inflation, managing debt and protecting households from economic shocks.

For developing economies, the challenge will be particularly acute as external trade disruptions and expensive financing collide with limited fiscal resources and rising demands for public support.