Steady Global Growth Expected Despite Volatile Conditions
January 2026*Translated from the original Japanese version released on December 18, 2025 (slightly modified)
Affordability crisis, erosion of the international economic order, the expandingAIeconomy
In the United States, the "affordability crisis," triggered by the rising cost ofliving, has developed into a top political issue. Changing policy priorities couldforce policy course corrections, or policies could also drift in the absence of
②Erosion of the international economic order(pp. 10-16)
The erosion of the international economic order, which was already evident, hasaccelerated in response to the US tariff measures. While the short-termbacklash fromthe 2025 frontloadingis occurring, countries and companies are
③The ExpandingAIEconomy(pp. 17-20)
Artificial intelligence is already boosting the current economy in the form oflarge-scale capital investment and growth expectations in the stock market,even without further development. Its impact is wide-ranging, including theconstruction of data centers, the spread of cross-sectional applications, and itsimpact on the labor and electricity markets. Meanwhile, the risk of anAI bubble
Growth rates of major countries and regions
Global economy to grow resilient despite volatile conditions
The globaleconomy isexpected to maintain3%growth in2026 ,despite the ongoing risk such as the affordability crisis and the erosion
•One factor supporting the growth of the global economyis theaccumulation of agile responses by countries and companies that are
✓Many countries are not retaliating against Trump's tariffs, but areinstead moving to diversify their trading partners and expanddomestic demand.✓Many companies are responding flexibly to the worseningbusiness environment and implementing reforms to increaseprofits.✓The disruption will prompt supply chain restructuring and lead to
(1) the worsening affordability crisis which can lead to indecisivemonetary and fiscal policies, (2) trade and investment disruptions dueto the further expansion of protectionism,and (3)uncertainty
What is theaffordability crisis?
As this becomes a political issue, it can lead to policy corrections and confusion.
⚫A growing tendency toward ad hoc measures continues,but a breakthrough is difficult: As addressing the affordability crisis becomes a priority forthe administration, policy resources are likely to be directed toward households in the form of price control measures and income compensation. Asdecision-making becomes even more ad hoc, it is difficult to foresee policies large enough to alleviate dissatisfaction. The affordability problem stems from
⚫Fiscal policy will be expansionary overall: The normal cycle which shows fiscal stimulus in time of recessions and fiscal consolidation in booms isbecoming hardly seen, and a tendency toward a more giveaway-styled fiscal policy will become stronger. Given the difficulty of implementing targeted
Politicization of the affordability crisis
Lower-income households have particularly suffered from post-pandemic inflation
The affordability crisis and the Trump administration
⚫November 2026 midterm elections approaching, an urgent issue is how to retain supporters who are leaving due to the affordability crisis.⚫Although measures such as excluding agricultural products from tariffs (November 2025)and a "dividend" scheme funded by tariff revenue have been
The affordability crisis may not be a US-only problem
Rising living costs are exacerbating the burden on low-income families outside the U.S.
How the affordability crisis affects the course of fiscal/monetary policies
Fiscal expansion in response to the affordability crisis could lead to a financial repression
Excessive fiscal policy may lead to a weaker yen, inflation, and rising interest ratesJapan's Affordability Issues: Economic and Fiscal Management
Erosion of the international economic order
Structural changes in trade and investment flowsaregoingondespiteremaining uncertainty
⚫US tariff measures and investment deals inthe US
⚫China's overproduction and export offensive⚫Trade and supply chain diversificationstrategy
Structural changes in international trade and
Trade flows
Structural changes in trade flows are underway behind the short-term backlash to frontloading
* Trend lines were estimated for each product type for the period fromJanuary2022toJune 2024based onseasonally adjusted real import data . Deviations ( % ) from the trend line were calculated for the period from
Imports of various goods are expected to experience a short-term decline
Exceptions:[Automobiles]Frontloadings are limiteddue to differences in tariffmeasures andUSMCAexemptions (in fact, overall imports are declining) ,[Capital
⚫Establishment of tariff measures/adjustment in response topolitical and economic conditions⚫Restrictions on imports of "Chinese products" via detours
⚫Diversifying
