Economists warn debt and geopolitics cloud fragile global recovery: WEF report

The global economic outlook has improved modestly but remains fragile, with rising debt burdens, narrowing fiscal space and shifting trade relationships posing persistent risks, according to the World Economic Forum’s latest Chief Economists’ Outlook.

While 53% of surveyed chief economists expect global economic conditions to weaken over the next year, this marks a notable improvement from September 2025, when 72% held that view. At the same time, the share expecting stronger global conditions rose

to 19% from 11%, pointing to tentative stabilisation rather than a broad-based recovery.

Global outlook improves, uncertainty remains

Outlook	January 2026	September 2025
Weaker	53%	72%
Unchanged	28%	17%
Stronger	19%	11%

Debt emerges as a central fault line

Global public debt reached $102 trillion in 2024 and is projected to approach 100% of global GDP by 2029, making debt management a defining policy challenge. Risks are seen as significantly higher in emerging economies than in advanced ones.

Likely debt-related risks	Emerging economies	Advanced economies
Sovereign debt stress	47%	31%
Currency crisis	41%	19%
Banking stress	24%	14%
Corporate debt crisis	21%	20%
Household debt	9%	8%

Views are split evenly on the likelihood of sovereign debt crises in advanced economies over the coming year, while nearly half of respondents see such risks as likely in emerging markets. A majority expect governments to rely on higher inflation and tax increases to manage debt burdens, while 53% anticipate debt restructuring or default in emerging economies over the next five years, compared with just 6% for advanced economies.

Spending priorities narrow under fiscal pressure

Managing elevated debt levels is reshaping government spending choices. Defence spending is almost unanimously expected to rise, alongside digital infrastructure and energy investment, partly reflecting AI-related power demand. In contrast, economists expect spending on environmental protection to decline in both advanced and emerging economies, while education, transport and research and innovation are seen facing flat or constrained budgets.

Trade realigns amid strategic competition

Global trade volumes have remained resilient, crossing $35 trillion in 2025, up 7% year-on-year. However, economists expect trade patterns to continue shifting. While US–China tariffs are likely to remain well above pre-2025 levels, competition is increasingly centred on technology controls and critical minerals.

A large majority expect bilateral and regional trade agreements to expand, with Chinese exports continuing to be redirected away from the US towards Asia, Europe and other emerging markets. At the same time, foreign direct investment flows are expected to tilt further towards the US, with a weakening outlook for China.

Growth prospects diverge by region

Among regions, South Asia stands out, with 66% of chief economists expecting strong or very strong growth, driven by India. The US outlook has improved, with most respondents expecting moderate growth, while Europe faces the weakest prospects, with over half anticipating weak growth.

Summing up the survey’s findings, World Economic Forum Managing Director Saadia Zahidi said the outlook points to “surging AI investment, debt approaching critical thresholds and trade realignments” as the defining trends shaping 2026.

The findings will inform discussions at the World Economic Forum’s Annual Meeting in Davos later this month, as policymakers and business leaders weigh how to navigate a stabilising but increasingly fragmented global economy.