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Business Daily
2026: What next for the global economy?
00:17:27
We speak to the BBC's Deputy Economics Editor and North America Business Correspondent
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- [00:00]
A
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- [01:21]
B
Hello, I'm Will Bain and welcome to Business Daily on the BBC World Service. Coming up today, trade wars, rising prices and questions about the independence of decision making for the world's biggest central bank. And all that was just the first half of last year. So on Business Daily today, we're gathering some of the BBC's top business and economic correspondents to look ahead to 2026 and ask whether we're in for a calmer economic year and explore what the big trends moving the global economy might be in the year ahead. Yes, this week we're going to look at the prospects for trade, big tech and AI, and whether the continuing cost of living squeeze we've been feeling right around the world could now be driving more radical economic decision making. To do all that, we're going to be joined by a panel of the BBC's leading business and economics correspondents. And today, to give us a bit of an overview for the global economy and the perspective from the world's largest economy, the U.S. we're joined by Darshini David, the BBC's deputy economics editor, and from New York by our North America business correspondent, Michelle Fleury Darcini. Obviously, tariff has been the story. We kind of Knew Coming into 2026, it was going to be the story because President Trump had been saying that in the election campaign. But did we actually underestimate to the scale that it was going to be the story in 2025?
- [02:42]
C
Oh, well, do we start this program by saying we got things wrong? Is that what you're asking? I think, you know, when it came to the start of this year, we looked at 2026 and having sat in the same position a year ago and got right, it's a time for reset for the global economy after we've had that period of intense inflation and you know, this coming in the back of a pandemic, was this going to be a bit of breathing space? And then we see the tariffs brought out by President Trump. A lot of economists are saying 2026, that's when we'll see it. And guess what? We got it in April, of course, that so called Liberation Day and that big board of Tariffs. And as the years gone on, we've been going, oh, hang on a minute, there's some resilience here that's showing up, even though we saw a bit of a climb down from the president, various trade agreements coming into place, even, you know, are things working out in a better way than perhaps some had expected in the spring? And I'd say there are upsides and downsides to all of this. But yes, certainly this has been the year we saw the world trading order turned on its head much quicker than we thought and much more dramatically.
- [03:37]
B
Michelle, bring us to today and the impact where you are in the US Of a year of tariffs. But also was there shock in the United States as well? How hard I suppose the president went at the tariffs pictured this time around?
- [03:51]
D
Yeah, I mean, I'd agree with everything Dartini said, but it's absolutely true that tariffs when they were first unveiled, sent a huge shock not just around the rest of the world, but also in America. Everyone knew that Donald Trump was a tariff man. But the kind of scale of those Liberation day tariffs on April 2, when we had the board and which were quickly ratcheted up in the case of China to over 100%, I think people didn't expect it to go that hard. I think now the expectation is that the impacts are still because they were delayed, because we saw that back and forth, they're actually going to show up in 2026. And so American consumers are beginning to feel the pinch, but they may feel it even more next year.
- [04:33]
B
Starshini expand on that in a moment for the global picture. But Michelle what does the resilience look like then in the US Right now.
- [04:38]
D
You'Re seeing a kind of two pronged economy. I mean, I think economists refer to it as K shape. And by that I mean that those who have more money, and especially those who are more maybe exposed, in other words, have money in the stock market, are feeling probably not too bad at the moment. The AI boom that we keep talking about is creating a wealth effect where people are feeling actually, you know, I'm going to spend more on holidays. If you look at the most recent Black Friday here in the United States, the day after Thanksgiving, lots of sales on offer. Early reports suggest that it was the higher income shoppers who were spending the most. But at the bottom end, the savings that were built up by people after the pandemic because they had nowhere to go and spend their money, that has all been starting to run out. They're racking up more credit card debt and they're struggling with higher prices. And so affordability. Affordability, Affordability, that is the word we keep hearing from the President here in the United States. We keep hearing from the mayor of New York. That was sort of part of a successful campaign by Zoran Mamdani, who takes over on January 1st.
- [05:39]
C
It's been absolutely extraordinary to watch it play out because as Michelle said there, everyone said, well, American households are in the front line, right? So what is going on here? I think you can divide the rest of the world into three camps at the moment. There are the countries that you would have thought would have done really badly out of this, for example, China and Brazil, who've actually done quite well because they were already looking at other sort of revenue streams before this happened. Because don't forget, this wasn't Big Bang overnight, even though we all had that shock and awe moment in April. So there was already sort of moves in place. If you look at the patterns of trade for China. Then there were other countries like Taiwan, for example, Vietnam, that still did well because guess what, a lot of what we're seeing happening in America when it comes to growth in investment, in particular in capital expenditure, is to do with AI. And they did very well at exporting related goods there. And then there's a third group which is the likes of Europe, which haven't done that well because they have seen trade with America suffer and haven't got the alternative streams at the moment. So it's a really diverse picture out there. And you know, when you look at growth in 2026, I think it's fair to say it's going to be another wobbly one for global trade. And in particular, who knows, President Trump could come back with more tariffs knowing that he now knows it's a pretty successful tool of foreign policy.
- [06:50]
B
If people have done those word bubbles before, you know, where you sort of take in like everything that you've written down in your diary or whatever and you put it through one of those generators and there's a word bubble with the word cloud and the ones you've used the most get bigger or smaller. Obviously tariffs would be the one that's sort of plastered wall size all over, all over it. But the other one would be rates and interest rates. I don't think in a decade this job dush. And you tell me we have talked as much about interest rates and interest rate policy and where it's going ever before. One, can you put your finger a little bit on why that is? Is it just about growth? And two, is that the world's biggest central bank going to battle over that into 2026? That we are going to be talking about this a lot more again too in the new year?
- [07:32]
C
We are. And it's really fascinating to look back and say why have we spent so much of the last year talking about it? I mean, it's really fascinating. By the way, if you look at forecasts that were made by big international institutions ago and where we've ended up, there isn't that much difference. So you might think, well, nothing much to see here.
- [07:48]
B
It's sort of how we got there.
- [07:49]
C
It's how we got there.
- [07:50]
E
Exactly.
- [07:50]
C
The journey has been fascinating and there's been all sorts of conversations, as you say, you know, central bank independence has come under the spotlight in a way that it hasn't for a couple of decades, which is in itself fascinating. Then there's the growth picture, then there's the stubbornness of inflation.
- [08:05]
B
Michelle, is that why it's become a kind of an everyday issue, a cut through issue, if you like, an issue that normal people who are not following every move at the Federal Reserve are interested in the United States because of exactly what Darshini is saying, that it's hitting things that they buy every single day of the week and that's what ends up shaping this debate and making it a mainstream debate?
- [08:26]
D
Yeah. You know, we keep talking here about the price of eggs or the price of meat. There have been lots of stories where people are every day in their lives encountering these higher prices. And at the same time you've got this worry now that the labor market is beginning to show signs of weakness because REM coming out of the pandemic, that was one of the very bright spots of the economy. People could choose whether to work or not. There were plenty sort of available. That is no longer true. And I think that's the challenge for the Federal Reserve, America's central bank next year is what do you do in that situation where you still have to worry on the one hand about higher prices and inflation, but on the other side you've got perhaps beginning of, of weakness in the labour market and the jobs market. And where do you land on that? Do you cut rates? Do you leave them on hold? At the same time you've got, you know, one of the big risks going into 2026, which will be the independence of the Fed. We know Donald Trump will appoint a new Fed. The Supreme Court is also going to decide on a case about one of the governors who is being investigated for alleged mortgage fraud. Is that an attempt to sort of pressure her out? She's still carrying on her job. Lisa Cook at the moment. So there are real questions about the independence and that will have a huge bearing on global markets in terms of their confidence in the decisions that are being made inside America's Federal Reserve.
- [09:53]
B
You're listening to Business Daily on the BBC World Service.
- [10:00]
E
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- [11:31]
B
I'm Will Bain. And today in the company of our deputy economics editor, Dashini David and our North America business correspondent, Michelle Fleury, we're looking at what the big business and economic trends might be in 2026. Is all of this being exacerbated, Darshini? Is it getting hot as a topic? I suppose, because lots of Western economies, modern economies, the biggest economies in the world, are really struggling to find new ways to grow.
- [11:57]
C
Absolutely. A hot topic. Makes it sound like that's what they're discussing in the bars in the evening. And I wish that was the case, but perhaps we should be, because how do we grow? That's become an issue. And you look at next year's forecasts, there's nothing much to write about, is there? It looks very dull. It's very underpowered. There is a good reason for that. We have seen a lack of investment since the financial crisis, but ultimately it is about uncertainty. And therefore, as a result, you know, you talk there about Western governments and a lack of growth. They're also all facing a similar problem in the fact of fiscal constraints as well, because without that kind of growth, you can't really do what you want to do. And we're all talking about higher taxes, right?
- [12:31]
B
Yeah. And massive amounts of debt that all of them are in as well. I mean, you're right. People are not sat having a beer going, gosh, I wonder what we can do about growth and whether this, this new AI tool will do it for me at my office tomorrow. But what it is propelling is those debates about politics, isn't it? There's a reason that suddenly people who couldn't have named you any governors on the Federal Reserve where Michelle is, are suddenly backing a runner and rider to be the new chair of the Federal Reserve because people are frustrated about nothing seeming to work.
- [13:02]
C
Nothing seemed to work. That breakdown of, you know, you can call it the American dream in the US you can call it the social contract here, this idea that you're going to be able to get the stuff you want if you work hard enough that you'll maybe have a better standard of living than your parents did, be able to afford a home, et cetera, et cetera. That, unfortunately, is becoming a bit of a constant Western theme at the moment that young people are saying Hang on a minute. I can't quite get there. And that's why you're seeing people around the world basically voting for change.
- [13:27]
B
Yeah. And, Michelle, you mentioned his name earlier. No one really more of a touchstone than someone you and I have talked about on this program before, as well as Zora Mandani there in New York. Do you think he is the first of perhaps a few that we're gonna see of people saying, okay, let's go for someone with some really radical answers to try and break the trend that Darshini's talking about?
- [13:46]
D
Look, I think there is a sense of frustration amongst the electorate, and they want to see different ideas. And this will be a spotlight, an experiment, if you like, on New York City as to whether those kind of ideas will fly in America. What was fascinating was the recent trip Zora Mamdani made to Washington. He met with Donald Trump. There was a lot of expectation that this would be fireworks. The two men wouldn't get on. Actually, Donald Trump was full of praise for Mamdani, which I think caught some people within his party by surprise. In part. Some of that has to do with the fact that both men have actually made affordability a central issue. The difference is obviously how they intend to address it. Trump, we know what he's doing. On the Mamdani side, there has been talk about how can you make transportation, for example, more affordable? How can you make housing more affordable? What's interesting when you talk to business leaders is they are very concerned on the one hand about his policies, but at the same time, they all agree that he has got the right issue. How do you deal with this? Because it's a problem for them, too. So this idea of affordability, whoever gets that right, you have to assume will be rewarded politically.
- [14:57]
B
Michelle Darshini put herself on the spot earlier. Come on, then. How long's the bromance between Trump and Mamdani going to last?
- [15:04]
D
I would say probably not very long. I'd give it three months. There you go.
- [15:09]
B
Right, we're on the clock on that one.
- [15:11]
D
I had a question. Can I ask Darshini a question? We were talking about trade, and obviously the US And China. It does appear that China has got more out of the trade war over tariffs than the US Has. But I was curious with Europe because a lot of exports from China have been diverted away from the US To Europe and other parts of the world. Is that going to be something that we're talking about a lot? And does the EU continue to allow that, or do you think they will respond or react in some way.
- [15:40]
C
It's a really fascinating question, Michelle, and you're right, you know, we are seeing a certain amount of that diversion and it's happening very quietly and it's happening at a time where Germany in particular. We've had a lot of talk, haven't we, about the kind of stimulus we're going to see, the regeneration, the resurgence of Germany, but very little action. And there's a certain amount of anxiety and frustration that's building up there. And what's the easiest way to respond to that is to turn towards China and say, well, actually, we're going to do something about it.
- [16:06]
B
And we've seen it, haven't we, President Macron there in the week. We're talking German Chancellor's visit.
- [16:11]
D
Yes.
- [16:11]
B
First UK visits in a long time. Absolutely. Actions as well, aren't we, in terms of.
- [16:16]
C
Totally. So this is something that's happening and not just sort of looking at China in a different way, but looking at the UK in a different way too. This is not going to be the year in which we see Brexit reverse, but there's certainly an appetite on, on both sides for closer workings, and you've certainly seen it politically.
- [16:30]
B
Let's finish with a few quick fire ones then, shall we? What do you think tariffs have kind of been the word of? I think we'd all agree on that. Right. It's been the word of 2025, Michelle. What's the word of 2026 going to be, do you think?
- [16:42]
D
Oh, the other one would have been immigration, but I think tariffs and trade will continue to be probably still up there at the top.
- [16:52]
B
Yeah. You've both kind of touched on perhaps the answer to this as well. What's a thing that perhaps we've not talked about that much this year that you think we'll be talking about lot next year?
- [17:01]
C
Oh, what are we going to talk about a lot next year? I think.
- [17:07]
D
I mean, I think AI, because the stock market confidence we've seen here on Wall street has been phenomenal and a lot of that has been built on. On AI, And I think if, you know, the rise of AI agents. Or is it a bubble that could burst?
- [17:22]
C
Indeed. And I think there's upsides and downsides to this. Right. I think there's two parts of this and. And, you know, on the one hand, as you're saying there, Michelle, that there's the idea that this could drive productivity if harnessed in the right way, and it's a case of picking out the right companies. And if there is the downside, then there is the case, as we've heard various people, including the governor of the bank of England, warning about what could be the fallout for financial conditions around the world. And therefore, you know, even though people in countries far away from America may feel that this is something happening somewhere else, as Michelle and I saw during the financial crisis, it doesn't take long sometimes for what's happening on Wall street to affect Main street many thousands of miles away. And that's something to be wary of.
- [18:00]
B
And as a result, then, is there a person or perhaps a company that you think we'll be talking about a lot again? Perhaps, when we've let you joked about Elon Musk being the one last year, we certainly talked about him plenty this year. You're right, we did. Someone like Jensen Huang feels like someone like that, doesn't he? The chief executive, Nvidia. And there would have been a company, if we'd done this five years ago, we never would have talked about that company, would we? Yet now people are talking about is someone coming to challenge them as well. And he seems, from my perspective, I don't know whether you guys agree, he feels like he's almost an embodiment of a load of the stuff that we've talked about today. It's sort of in one man and in one company. The trade war. What's going on with AI? Is it really going to be.
- [18:38]
C
It does, but these things change. I mean, and do cycles change? I remember doing an event with Sundar Pichai before He became, just 10 years ago, before he became the boss of Google, we all thought, my goodness, what a rock star. And he absolutely did become that person. And now Google is saying, well, hang on, hang on a minute. Are we vulnerable to what's going on elsewhere? So I wonder if these cycles are going to get ever shorter and we're going to be talking about somebody in a completely different company doing video who we haven't even dreamt of talking about at the moment right now.
- [19:05]
D
And also M and A activity. I mean, we haven't really talked about mergers. Obviously, the big one at the end of this year has been Netflix with Warner Brothers. In the media world, we don't know if that will go ahead or not. But I mean, we could see more under a Trump administration that's so focused on deregulation, it's not an individual, but we could see a lot more of sort of companies getting together.
- [19:27]
B
Well, I, for one, I'm glad you're both going to be nice and busy and we're looking forward to having you both on the program in the new year.
- [19:33]
C
Well, thank you.
- [19:34]
B
Thanks so much.
- [19:35]
C
Thank you.
- [19:36]
B
Our North America Business Editor Michelle Fleury there and Dashini David as well, the BBC's deputy economics editor Crystal Ball gazing for us on the stories they might be covering in the year ahead. And tomorrow we're going to look at the trends shaping 2026 for companies and countries economies across Asia with our Asia Business correspondent Suranjana Tiwari and our India business correspondent Aruna Day Mukherjee. So do join us for that or even better, subscribe to our podcast to never miss an episode, just search for BBC Business Daily.
- [20:23]
E
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