Financial markets are projecting confidence that doesn’t match reality, according to Ken Rogoff, and the gap between investor sentiment and the scale of uncertainty facing the global economy could prove costly. The former IMF chief economist describes current conditions as ‘solid but not exciting’—then warns of a significant stock market correction looming within three years.
That’s the unease threading through ACCA’s latest Global Economic Outlook, released this week.
The report projects global GDP growth of around 3% for 2026, broadly matching last year’s performance and supported by looser monetary policy, fiscal stimulus and continued artificial intelligence investment. Reasonable, yes. But far from reassuring when examined more closely. The risks, ACCA’s third annual outlook makes clear, tilt firmly downward.
For businesses across the Middle East, that creates a particularly complex operating environment. Regional economies remain tightly woven into global trade networks, capital flows and investment patterns—exactly the systems now showing strain.
Rogoff, interviewed for the report, didn’t mince words about what lies ahead. “Despite the surprisingly positive economic picture given where it seemed we were six months ago, I think there are a lot of downsides to the US administration’s policies, with negative consequences for the US economy likely to emerge in 2027 and 2028. Populist policies work until they don’t.”
The timing matters. Markets could climb higher in the near term, Rogoff acknowledged, even as the foundations weaken. It’s the classic setup for a painful reversal—optimism meeting reality at speed.
Global growth in 2025 surprised observers by holding up despite major trade disruptions and policy uncertainty. That resilience is expected to carry forward, but Jonathan Ashworth, ACCA’s chief economist and the report’s author, struck a cautious note. “On a central case scenario, the global economy should continue with a steady expansion in 2026, aided by looser monetary policy, fiscal easing, and the ongoing AI boom. The US should be the fastest growing G7 economy, with the administration likely to double down on efforts to boost growth ahead of the mid-terms. But it is a fragile global backdrop, amid heightened geopolitical uncertainty, risks of an escalation in trade tensions, and concerns about threats to the Federal Reserve’s independence.”
Fragile. That word appears repeatedly throughout the analysis, and with reason.
The US is forecast to lead G7 growth, propelled partly by political imperatives—mid-term elections create powerful incentives to juice economic performance. Yet those same political pressures could undermine the Federal Reserve’s independence, a development that would rattle bond markets and cascade through the global financial system.
Meanwhile, Middle East economies find themselves navigating crosscurrents. Many Gulf states are deep into ambitious diversification programmes, investing heavily in AI, digital transformation and efforts to reduce dependence on hydrocarbons. The external environment they’re building into, however, grows less predictable by the quarter.
Kush Ahuja, who heads ACCA’s Eurasia and Middle East division, put it bluntly. “For the Middle East, this outlook reinforces how exposed the region remains to global economic, geopolitical and financial market developments. While many regional economies continue to advance ambitious diversification and transformation agendas, the external environment is becoming more complex and less predictable. This places an even greater responsibility on finance leaders to strengthen risk management, scenario planning and strategic decision-making. As organisations across the Gulf invest in AI, digital transformation and long-term growth initiatives, the ability to interpret global economic signals and translate them into resilient business strategies will be critical.”
The report identifies three pressure points that could reshape the global outlook this year, each capable of triggering broader instability.
First, developments around artificial intelligence. Investment in AI has surged, driving much of the optimism in equity markets. Early signs suggest productivity gains are beginning to materialise at some firms, which would justify the enthusiasm and distinguish this boom from the dot-com bubble. But if doubts about AI’s actual economic impact were to build—if the productivity story weakens—market corrections could follow swiftly. The parallel to the late 1990s hangs in the air, unspoken but present.
Second, advanced economy bond markets. A sharp rise in government bond yields would hammer economic growth and spike debt-servicing costs across developed nations. Several catalysts could trigger such a move: investor anxiety about debt sustainability, political instability, any erosion of Federal Reserve independence, or monetary tightening in Japan. Bond markets have remained relatively calm despite elevated government debt levels. That calm may not last.
Third, global trade dynamics. The substantial increase in US tariffs continues to ripple outward, disrupting established supply chains and trade relationships. The risk of re-escalation remains live. For export-oriented economies and regions dependent on open trade routes—including much of the Middle East—further trade tensions would complicate planning and dent growth prospects.
Business leaders consulted for the report highlighted additional concerns: geopolitical flashpoints, cybersecurity threats and the uneven progress of the green transition. Each adds layers of complexity to an already uncertain picture.
What emerges is an economy that functions adequately on the surface while accumulating stresses beneath. The 3% growth figure suggests continuity and stability. Dig deeper, and the fragility becomes apparent.
Ashworth emphasised the broader challenge facing organisations worldwide. “In a volatile, unpredictable and rapidly changing world, understanding the interplay of economic, geopolitical, political, and technological factors will be critical for businesses and policymakers.”
For finance leaders, particularly those operating across the Middle East, that interplay demands more sophisticated scenario planning than usual. The Gulf’s transformation projects—many with multi-decade timeframes—are being executed in an environment where the three-year outlook carries unusual uncertainty.
The 2025 resilience that surprised economists bought time, not immunity. Whether that resilience extends through 2026 depends partly on factors beyond any single government’s control: how AI investment translates into productivity, whether bond markets remain patient with elevated debt levels, how trade tensions evolve.
And whether financial markets start pricing in the uncertainty that Rogoff insists they’re currently overlooking. By the time they do, the cost of adjustment could be steep.