In 2025, the global trade war and artificial intelligence dominated the economic landscape. Trade tensions initially triggered fears of a major slowdown in the United States, while America’s tech supremacy was momentarily challenged by Deepseek, a Chinese start up, which unveiled a highly cost efficient and powerful AI model. Ultimately, and contrary to forecasts, US growth remained robust, supported in large part by substantial capital outlays in AI. Looking ahead to 2026, market consensus overwhelmingly expects a moderate reacceleration in growth. As in 2025, however, could some unexpected developments alter this outlook?
US growth in 2025 significantly exceeded initial projections. The country’s economy expanded in the third quarter at the fastest pace in two years. Consumer spending, a key driver of growth, advanced 3.5%, despite consumer confidence declining for a fifth consecutive month amid persistent inflation concerns and a softening labour market. Business investment grew at a rate of 2.8%, fuelled by continued strong investment in artificial intelligence.
That said, the aggregate numbers mask a more complex landscape. The top 10% of US earners now account for nearly half of national spending, supported by a buoyant stock market and elevated real estate values. Meanwhile, the low-end consumer has suffered. Reports from car loan companies, fast-food chains and discount retailers indicate significant pressure on younger or lower-income customers, who face difficulties meeting loan repayments and are cutting back on spending. A similar divergence is evident among corporates. While 2025 has been a good year for most of the largest US companies involved in artificial intelligence, many small firms have struggled to withstand economic headwinds. Higher inflation, a cautious consumer and tariffs have all weighed on their profits.
As a result, the US economy has become increasingly “K-shaped”, a term used to describe a sharp divergence in fortunes. While wealthy consumers (the top of the “K”) are doing well, those in lower income brackets (the bottom of the “K”) are struggling. Strong overall economic data, driven by the spending power of wealthier households, therefore obscures the financial difficulties faced by many Americans. The situation presents a complex dilemma for monetary policy. Lower interest rates can help provide relief to lower-income households, but they also tend to fuel the wealth of the affluent who hold significant assets. The Federal Reserve has acknowledged the weaknesses in certain parts of the economy and has cut interest rates three times this year, with further cuts expected in 2026. These measures should help alleviate pressure on low-income consumers and small companies and hopefully not lead to market excesses or a rebound in inflation with negative consequences for the economy.
The US economy defied many of the initial pessimistic predictions in 2025. Growth was largely attributed to substantial AI investment and robust household consumption, particularly among higher-income Americans. A modest rebound is widely anticipated for 2026. Supportive tax refunds for both households and enterprises, a continued increase in AI spending and an easing monetary policy should all bolster economic growth in 2026. Nevertheless, vigilance is warranted regarding potential headwinds that could disrupt this positive trajectory.
Date of report: January 7th 2026