Even as global economic output is forecast to grow by an estimated 2.7 per cent in 2026, the United Nations has warned that the effects of higher tariffs and heightened macroeconomic uncertainty are expected to become more pronounced as the year moves ahead.

The outlook outlined in the global body’s World Economic Situation and Prospects 2026 Report, released Thursday was produced by the United Nations Department of Economic and Social Affairs (UN DESA) in partnership with the United Nations Conference on Trade and Development (UNCTAD) along with the UN’s five regional commissions.

Its projections tied to a global economic outlook, remains clouded by elevated uncertainty, shifting trade policies and persistent fiscal constraints, geopolitical tensions and financial risks that continue to weigh on confidenc, much of which leaves the global economy in a fragile position.

“Financial conditions have eased amid monetary loosening and improved sentiment, but risks remain high given stretched valuations—especially in sectors linked to rapid advances in artificial intelligence. Meanwhile, high debt levels and borrowing costs are constraining policy space, especially for many developing economies,” the report noted.

United Nations Secretary-General António Guterres said the outlook reflecting a combination of economic, geopolitical and technological tensions have been reshaping the global landscape while generating new social and economic vulnerabilities.

“Many developing economies continue to struggle with elevated debt burdens, constrained fiscal space and tepid growth — compounded by intensifying climate shocks. As a result, progress towards the Sustainable Development Goals remains distant for much of the world,” he added.

According to the report, the global economy which showed unexpected resilience in 2025 despite a sharp increase in tariffs imposed by the United States was largely supported by solid consumer spending, easing inflation, front-loaded shipments and inventory accumulation and broadly stable labour markets which all helped to sustain economic activity while limiting immediate disruptions to international trade. To this end, global growth projected at 2.7 per cent, falls one percentage point below that in 2025 but is expected to climb to 2.9 per cent in 2027, though remaining below the pre-pandemic average of 3.2 per cent recorded between 2010 and 2019.

For small island developing states, growth is projected to slow from an estimated 3.5 per cent in 2025 to 2.8 per cent in both 2026 and 2027. While continued tourism recovery is supporting these economies, the UN warned that they remain highly vulnerable to climate shocks, limited economic diversification, elevated debt burdens and persistent investment gaps.

The report further noted that although inflation continues to ease globally, cost-of-living pressures remain, posing significant challenges for vulnerable countries. Policymakers, it said, will face an increasingly complex inflation landscape, with supply-side risks requiring a more coordinated and forward-looking approach. While monetary policy will remain central, the report said this must be supported by credible fiscal frameworks, targeted social measures and sectoral policies aimed at expanding productive capacity and strengthening supply chains, particularly in food, energy and logistics.

“Coordinated action across monetary, fiscal and industrial policies will be critical to managing persistent price pressures without compromising social stability or long-term growth,” the report stated.

UN Under-Secretary-General for Economic and Social Affairs Li Junhua in his remarks added that ensuring lower inflation translates into real improvements for households will require safeguarding essential spending, strengthening market competition and addressing the structural drivers of recurring price shocks.

Despite rising tariffs and protectionist pressures, the report however noted that global integration remains strong, with trade in goods and services accounting for more than half of global gross domestic product.

“Beneath the short-term volatility, structural shifts are reshaping global commerce. Firms are diversifying supply chains, relocating production, and expanding South-South trade linkages, while rapid digitalisation and technological innovation are driving a growing share of digitally delivered services,” the report further outlined.

“These trends are creating new opportunities for developing countries to integrate into emerging segments of global value chains, attract investment in manufacturing and services, and diversify export markets beyond traditional partners. The expansion of regional and digital trade networks offers further potential for inclusive growth and broader participation in global trade,” it continued.