US economy braces for slow, uneven growth in 2026

After a volatile 2025 under President Donald Trump, the American economy is expected to face slower but steady growth in 2026, with stubborn inflation, structural challenges, and policy uncertainties shaping a complex outlook, according to at least two major forecasts.

Other analysts, however, foresee a rebound fueled by fiscal stimulus, tax cuts, AI-driven investments, and easing trade tensions. There is a caveat, though: structural issues, demographic shifts, and labour market vulnerabilities could stymie growth.

Economists at the Royal Bank of Canada (RBC) – a Canadian multinational financial services company and one of the world's largest banks – use the term "stagflation lite" to describe the US economic outlook for 2026, forecasting GDP growth below 2% alongside persistent core inflation above 3%, particularly in housing and services.

Slower growth, according to RBC economists, is driven not by sudden shocks but by structural considerations such as an aging population, dwindling immigration, and uneven productivity growth. Deloitte – the British multinational professional services network providing audit, consulting, tax, and advisory services – echoes this caution, warning that inflation, demographic trends, and trade policies remain key risks to the US economic outlook.

However, an analysis by Reuters' news agency points to potential upside from Trump's tax policies. Larger tax refunds and lower payroll withholdings are expected to boost consumer spending, the backbone of the American economy, while Trump's "One Big Beautiful Bill" provides businesses with a range of credits and full expensing for capital investments.

Diane Swonk, Chief Economist at KPMG International Ltd, a London-based British multinational professional services network, estimates that fiscal stimulus alone could add 0.5 percentage point, or more, to first-quarter GDP growth. Analyst Michael Pierce of Oxford Economics adds that fading policy uncertainty, tax cuts, and recent Fed rate reductions could strengthen the economy in 2026.

According to the RBC forecast, there could be a "two-speed" consumer economy, where higher-income households continue robust spending, buoyed by investment income, while lower- and middle-income households face growing financial crunch due to runaway prices and stagnant wages. Although tax relief and government transfers offer a breather, many Americans may struggle to maintain purchasing power as inflation outpaces wage growth.

Reuters stresses the role of consumer spending in driving near-term growth, stating that the wealthiest Americans, benefiting from stock market gains, have fueled the acceleration seen in the third quarter of 2025.

However, weaker perceptions of the labour market – exacerbated by the six-week federal government shutdown in October 2025 – may prompt households to save rather than spend additional tax relief, limiting broader economic gains.

The labour market is expected to soften in 2026. Although unemployment is likely to remain relatively low, RBC economists argue that slower hiring and a shrinking labour force due to aging and reduced immigration could signal an underlying slowdown.

Traditional labour market indicators, such as unemployment rates, may not fully capture these dynamics, masking potential wage pressures and labour shortages in key sectors.

Job growth in 2025 slowed sharply, with unemployment reaching 4.6% in November, partly distorted by the government shutdown. While Goldman Sachs anticipates stabilisation at 4.5% as hiring responds to stronger final demand, labour market softening remains the largest downside risk, particularly if AI-driven productivity cuts labour force demand.

Both RBC and Deloitte foresee AI as a key driver of near-term growth, particularly in technology, digital infrastructure, and semiconductors. Investment in AI-related infrastructure, such as data centres, is likely to continue, supported by corporate initiatives from firms like Amazon and Alphabet and government programmes like the CHIPS Act.

Reuters says that businesses are emerging from a "low-hire, low-fire" mode, poised to invest more in AI-driven productivity.

However, economists caution that the full productivity gains from AI may take years to materialise, and the benefits for workers are uncertain.

Short-term AI investments may bolster growth, but structural constraints in labour supply and wage pressures could offset its impact.

Government spending is likely to remain a stabilising factor. RBC and Deloitte both stress the central role of federal fiscal support in maintaining economic activity, even as rising social programme demands and an aging population pose long-term fiscal challenges. Reuters says that recent monetary easing by the Federal Reserve and potential rate cuts under a new Fed chair could further stimulate growth, though elevated inflation may limit the scope of additional rate reductions.

Trade policy remains another critical variable. Trump's sweeping "reciprocal" tariffs in 2025 aimed to spur growth had the inverse effect, but easing trade tensions, especially with China, and easing uncertainty around duties could boost business investment and productivity. Conversely, if trade frictions reignite, then inflation and slow growth would exacerbate.

At the same time, stronger-than-expected growth in China could add to global competitive pressures. Goldman Sachs projects China's real export growth at 5-6% annually over the next few years, driven by efforts to boost manufacturing competitiveness and expand exports, allowing Chinese goods to gain global market share.

In final verdict, economists say there is little possibility of a severe downturn in the world's largest economy in 2026, but growth will likely remain modest and uneven.

Positive drivers include tax cuts, fiscal stimulus, AI investment, and cessation of trade war, while resilient inflation, labour market constraints, demographic shifts, and structural challenges present headwinds. Businesses, policymakers, and households will have to factor in these competing forces in the coming year.

The writer is an independent journalist with a special interest in geoeconomics