Why the global economy remains resilient despite wars, tariffs and oil tensions
The global economy has proved more resilient than what many experts predicted, despite successive shocks including Russia’s war in Ukraine, Donald Trump’s tariffs, and the war involving the United States, Israel and Iran, which disrupted energy supplies through the Strait of Hormuz.
Global trade continued to expand in 2026 despite geopolitical tensions, with growth increasingly driven by technology-intensive sectors. The WTO estimates that world merchandise trade volumes grew by 3.5% year-on-year in the first half of 2026 and forecasts growth of 3.9% for the full year, up from its previous forecast of 1.9%, following 4.2% growth in 2025. Including services, global trade volumes are projected to increase by approximately 3.7% in 2026. Trade in AI-enabling goods, including semiconductors and servers, surged by 67% year-on-year in the first half, accounting for 47% of merchandise trade growth in value terms. Critical minerals, batteries, electric vehicles and computer services also recorded strong growth, supported by investment in AI, digital infrastructure and the energy transition.
However, services trade growth has been downgraded to 3.3% for 2026, from an earlier forecast of 4.8%, while transport and travel services are expected to grow by just 0.9% and 0.2%, respectively. International tourist arrivals fell by 0.8% year-on-year in the second quarter, and spending by international travelers slowed from 15% growth in the first quarter to 5% in the second. Energy trade was also disrupted by the Middle East conflict: regional crude oil exports fell by approximately 24% and liquefied natural gas exports by 47% in the first half, although global export volumes declined by only 6% and 1%, respectively, as alternative suppliers compensated for much of the shortfall. Overall, the value of merchandise trade rose by 15% in the first half, far faster than its 3.5% volume growth, reflecting higher energy prices and strong demand for technology-related goods.
The United States grew by 2.1% in real terms in 2025, compared with 2.9% in 2024. Growth continued during 2026, with GDP expanding at annualized rates of 2.5% in the first quarter and 2.2% in the second quarter, and unemployment stood at 4.2% in September 2026, which are still relatively good figures.
One explanation for the economy’s resilience is that the actual effects of geopolitical and economic shocks have been smaller than their initial appearance suggested. In the United States, tariff avoidance, transshipments and delayed implementation may have reduced the effective impact of Trump's trade measures. Although the average tariff rate rose dramatically, tariff revenue increased by less than $200 billion during 2025, a relatively small amount in an economy worth more than $30 trillion. Foreign retaliation, specially from Europe, also remained limited, reducing the immediate damage to American exporters.
These figures help explain why the immediate economic impact was less severe than many forecasts anticipated. Nevertheless, higher tariffs can gradually increase production costs, while reduced immigration can constrain the workforce and productive capacity. The effects may become more pronounced as businesses exhaust their ability to absorb additional costs or reorganize supply chains.
Artificial intelligence has been a particularly important driver. Federal Reserve Bank of St. Louis research estimates that AI accounted for approximately 40% of US GDP growth through August 2025. Investment in data centers, computing infrastructure, electricity and related technologies has supported demand across multiple industries. Rising stock markets have also helped sustain consumption through a wealth effect, while productivity gains since the pandemic may have strengthened economic performance even before AI's full potential has materialized.
Fiscal policy has provided another stimulus. The One Big Beautiful Bill Act combines tax reductions and spending provisions that support household disposable income, but at the cost of additional borrowing. Goldman Sachs estimated that the legislation would raise disposable income by 0.4 percentage points during the first half of 2026. These benefits help explain why consumption and investment have remained relatively robust, although part of the fiscal stimulus may eventually be offset by higher interest costs and additional public debt.
However, as of October 2026, inflation is rising again in the United States and Europe, while Asia shows a more mixed picture. In the US, annual consumer inflation stood at 3.4% in August, up from 2.7% in December 2025, driven partly by higher energy prices; September inflation is expected to rise further to around 3.7%, although the official figure is not yet available. In the euro area, inflation accelerated to an estimated 3.8% in September, up from 3.2% in August, with energy prices rising by 18.8% year-on-year, while core inflation remained around 2.5%. In Asia, inflation remains relatively low in China, where it is forecast to have edged up to around 1.0% in September, reflecting subdued domestic demand, but is increasing in India, where it reached 5.54% in September, driven by food prices, higher energy costs and weak monsoon conditions. Overall, renewed energy-price pressures are complicating efforts to bring inflation under control, although the impact varies considerably across economies.
The increase in US federal debt is one of the clearest reasons why short-term economic resilience should not be interpreted as proof that Trump's economic agenda is sustainable. The Congressional Budget Office (CBO) projected in February 2026 that the federal budget deficit would reach $1.9 trillion in fiscal year 2026, equivalent to 5.8% of GDP. Publicly held federal debt was projected to reach 101% of GDP in 2026, rising to 120% by 2036 if current-law projections hold.
Trump's One Big Beautiful Bill Act adds to this fiscal pressure as it will increase public debt by approximately $4.2 trillion over the next decade, or around 9% of GDP. The legislation supports disposable income and economic activity through tax provisions, but it also increases borrowing requirements.
15.5% of federal spending went towards net interest. Roughly one out of every six to seven dollars the government spent was used to service debt rather than directly finance programmes such as healthcare, defense, education or infrastructure.
Interest payments were equivalent to approximately 57.3% of the annual deficit. The government borrowed nearly $2 trillion more than it collected, while interest payments alone amounted to more than $1.1 trillion
Many western countries are having structural difficulties as well. France’s public debt reached approximately 114% of GDP in 2025, while its budget deficit was around 5.4% of GDP, well above the EU’s 3% limit. Across the eurozone, public debt stood at roughly 88% of GDP, with Italy above 135% and Belgium above 100%. These persistent deficits increase borrowing needs, while rising interest payments divert public money from investment and services.
Higher debt does not automatically trigger an economic crisis. The United States benefits from the dollar's international role and the depth of its financial markets, which help sustain demand for Treasury securities. Nevertheless, persistent deficits increase the amount the government must borrow and the interest payments it must make. As debt and interest costs rise, more public resources may be devoted to servicing existing obligations rather than infrastructure, research or other productive investment.
Nevertheless, the experience of recent crises also suggests that governments and central banks have become more aware of the dangers of excessive policy reactions. Fiscal support can stabilize household incomes, while measured monetary policy can help prevent a temporary supply shock from triggering a deeper downturn. Yet tariffs, inflationary pressures and weakening labor demand remain significant trade-offs. The economy’s ability to absorb shocks does not mean those shocks are cost-free.
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