2026 and beyond to be shaped by uncertainty

World affairs have rarely, if ever, been predictable. However, recent times have seen an increasing number of black swan events. That is, developments that are beyond the realm of normal expectations, of large magnitude and consequence, and which play a vastly larger role than regular occurrences. This volatile, uncertain, complex and ambiguous landscape is full of opportunity and risk, but it is hard to forecast and navigate.

Looking to the new year, there are two big macro uncertainties. First is whether the geopolitical context will improve or worsen. This is not only in Ukraine, but elsewhere as well, including the Middle East following the post-Oct. 7, 2023, conflicts involving Israel that sent shock waves across the region.

The second key uncertainty is whether the international economic expansion since the trauma of the COVID-19 pandemic will endure. This is driven by an artificial intelligence boom that is disrupting the world economy from top to bottom.

The four possible resulting scenarios are: a combination of continued economic growth and a very challenging geopolitical context (resilient world); an easing of geopolitical tensions with more robust economic growth (peace and prosperity); a combination of a much weaker global economy and easing geopolitical tensions (world stagnates); and continuing, very high geopolitical tensions and global economic angst (time of troubles).

The geopolitical context may well be at least as challenging, or possibly even more so, in the coming years than it is today

Andrew Hammond

In reality, the world of 2026 and beyond will combine features of all these scenarios. All are plausible and provide guideposts to the complexity of the future.

However, two are significantly more likely than the others. This is because, unfortunately, the geopolitical context may well be at least as challenging, or possibly even more so, in the coming years than it is today. While the post-Spanish flu pandemic 1920s became known as the prosperous “Roaring ‘20s,” the post-pandemic 2020s may be defined by future historians as a more conflictual “Warring ‘20s.”

The second global uncertainty is harder to forecast. That is, whether the global economy will continue to grow, fueled perhaps by the current AI boom.

This means that the two most-likely scenarios are resilient world and time of troubles. The most positive future, peace and prosperity, may be the least likely to materialize.

While the resilient world future tends to get much airtime, a new time of troubles cannot be dismissed

Andrew Hammond

The resilient world paradigm is the one that tends to get the most attention from international policymakers. For instance, International Monetary Fund Managing Director Kristalina Georgieva has said that “a better balanced, more resilient world economy is within reach. We must act to secure it … All countries must redouble efforts to put their own houses in order.”

The resilient world scenario is more positive in its outlook than the time of troubles. However, global growth may still remain very uneven, led by emerging markets powers such as India, in what has been a fragile period of expansion in the face of multiple shocks.

Although global gross domestic product growth in the 2020s has been the weakest since the 1960s, this has been masked to some degree by the AI boom. It is estimated, for instance, that an estimated 40 percent of US GDP growth is now related to spending on AI — which an increasing number of commentators indicate is leading to a growing bubble.

The period since the pandemic has also seen a slowing of globalization. For instance, McKinsey estimates that Western investment in China is down by about 70 percent since 2022.

Geopolitically, several regional wars may well continue, including in Ukraine, plus continued military saber-rattling from time to time by unstable nuclear regimes, including North Korea. There will also continue to be much fragility, including in the Middle East. However, world powers including the US and China still have significant incentives to prevent the expansion of such conflicts into anything deeper and broader.

Yet, while the resilient world future tends to get much airtime in official policymaking circles, a new time of troubles cannot be dismissed. This term was coined in reference to a chaotic period of Russian history from around 1584 to 1613, which was defined by a challenging dynastic succession characterized by political instability, famine and foreign invasions.

A global time of troubles in the 2020s could be triggered by a combination of a worsening geopolitical context and a faltering global economic outlook. This might be caused in part by a significant tech economy crash, which might be much more harmful to the US than the 2007-08 crisis.

Given the growing dependence of the US economy on AI investment, the nation’s vulnerability to such a crash may be acute. Indeed, some leading scholars — such as Nobel laureate Daron Acemoglu, a professor at the Massachusetts Institute of Technology — believe it could lead to a wider unraveling of US power, intensified by the declining resilience of key American institutions.

Unlike the aftermath of other recent economic traumas, such as in 2007-08 and 2020-21, one of the key challenges of a future crisis will be that government indebtedness is forecast by the IMF to rise to an average of about 100 percent of global GDP before the end of the 2020s. This means many countries may lack the fiscal firepower to fully counteract a big economic slump.

This scenario would probably lead to a period of pronounced deglobalization. This could see nations increasingly deploying so-called beggar thy neighbor economic policies, including trade tariffs, akin to the interwar years.

So, this future would see fragility morph into a cycle of decline — geopolitically and economically — in a landscape in which the global order becomes precarious. Geopolitically, this might reduce the incentives for great powers, including the US and China, to prevent regional wars from growing, potentially sowing the seeds of even larger conflicts.

• Andrew Hammond is an associate at LSE IDEAS at the London School of Economics.