The global economy has entered a period of “stagflation light” marked by sluggish growth and persistently elevated inflation, according to Allianz Trade’s latest economic outlook.
The report warns that while current conditions are less severe than the 2022 Ukraine war shock, major economies are experiencing their lowest growth levels since 2008, excluding recession periods. Global GDP is forecast to grow at just 2.6% in both 2025 and 2026, with inflation remaining elevated at 3.9% and 3.6%, respectively.
The ongoing trade war is primarily being borne by exporters, though US consumers face higher inflation - expected to rise by 0.6 percentage points by mid-2026.
The US economy is treading water, caught between mounting headwinds from tariffs and tight immigration policy versus growing strength from AI-related investment. GDP growth is forecast at 1.8% in 2025, slowing to 1.6% in 2026 before recovering to 1.8% in 2027 – amongst the lowest rates since the start of the century.
Inflation is expected to remain persistently above the Federal Reserve’s 2% target through 2027, averaging 2.8% to 3.0% in 2026-27 as elevated tariffs increasingly pass through to consumer prices. The Fed is expected to deliver just three more rate cuts by mid-2026, reaching a terminal rate of 3.25% to 3.50%, notably above current market pricing.
The Eurozone faces deceleration, with growth expected to slow to 0.9% in 2026 from 1.2% in 2025.
Germany is confronting its third consecutive year of economic stagnation, with GDP growth forecast at just 0.1% in 2025. France is expected to accelerate slightly in 2026 thanks to credit cycle recovery, though political instability represents a key downside risk. Spain continues to outperform, with growth revised to 2.6% in 2025, though expansion is projected to slow gradually.
The European Central Bank is expected to maintain its deposit rate at 2.0% for the entire forecast horizon, with inflation hovering around the 2% target.
UK growth is on the upside in 2025, now forecast at 1.4%, driven by strong business investment and elevated real wage growth. However, increasingly restrictive macro policy is expected to weigh on growth in 2026, slowing it to 0.9%.
Inflation remains a concern, expected to stay above 3% through spring 2026 before softening to settle around target by spring 2027. The Bank of England is expected to enter a prolonged pause, with the next rate cut not anticipated until April 2026, eventually lowering the Bank Rate to 3.25% by the end of 2026 and 3.0% by 2027.
Japan’s economy is forecast to slow following above-trend growth of 1.3% in 2025, with GDP growth reaching just 0.6% in 2026 and 0.8% in 2027. China’s growth is projected to slow from 4.8% in 2025 to 4.2% in 2026 as exports contract and domestic demand remains weak.
Asian exporters have gained market shares in the US, with Taiwan, Vietnam, Thailand, and Indonesia retaining spare manufacturing capacity, though the outlook turns grimmer as the trade cycle becomes less supportive.
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