Oxford Economics - World GDP: Forecast Revisions

Kiran Ahmed, Oxford Economics

By Kiran Ahmed, Oxford Economics

Upward revisions to US and Chinese GDP growth in Q4 meant that the previously anticipated soft end to 2025 failed to materialise. While we now project activity will rebound by less than we previously expected in early 2026, world GDP growth this year has been mechanically nudged up.

The US government shutdown dragged on growth late last year. Looking ahead, we expect overall consumer spending will remain resilient on the back of fiscal stimulus, the recent equity price surge, and a stabilizing labour market. This, along with a broadening of investment away from AI, should ensure that US GDP expands by an above-consensus 2.8% in 2026.

The Chinese economy grew by 5% in 2025. We anticipate authorities will announce a 4.5%-5% target range for growth in 2026. We've raised our GDP growth forecast for China this year by 0.2ppts to an above-consensus 4.7%, positioning it at the midpoint of that range.

Our above-consensus views on the world's two largest economies would typically bode well for growth prospects in the rest of the world. However, our forecasts for most other major economies are below the consensus estimates for this year.

The effects of last year's tariff increases suggest US import growth will disappoint this year – there remains uncertainty regarding the path for tariffs following the US Supreme Court’s ruling on the White House’s tariff policy. Furthermore, the persistent effects of geopolitical uncertainty and the ongoing state-driven manufacturing expansion in China will likely dull investment and export prospects. Finally, compared to the US and China, other economies are generally likely to benefit less from fiscal support. The key exception to this trend is APAC – our optimism largely centres on our expectation that the region will continue to benefit from strong AI-related export growth.

In the UK, we expect GDP will grow by 0.9% this year. Automotive production has now been restored to normal levels, so we expect a stronger Q1. But we doubt the rebound will be as strong as that implied by January's composite PMI, and the underlying picture remains one of sluggish growth. The Bank of England's Monetary Policy Committee voted 5-4 to keep Bank Rate at 3.75% at February's meeting. A cut at one of the next two meetings looks likely, and we continue to expect one further 25bp cut in H2 so that Bank Rate ends 2026 at 3.25%.

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