The World's Top 5 Largest Economies in 2026

We are currently witnessing the changing of the guard, with emerging-market economies—particularly in Asia—making huge developmental strides and the economic hegemony of the West looking ever-shakier. The next several years should see a continuation of these trends, with China and India further closing the economic gap with developed economies. In this article, we look at which will be the world’s largest economies at the end of our forecast horizon in 2026.

 

1. United States:  USD 29.3 trillion in 2026

FocusEconomics panelists see the U.S. retaining its title as the world’s largest economy over the next few years, forecasting nominal GDP of USD 29.3 trillion in 2026. Healthy private consumption and fixed investment, growing energy output, a flexible labor market, still-favorable demographics and a supportive fiscal policy will all aid activity. However, the Fed’s hawkish monetary stance poses a risk to domestic activity, while the political gulf between Republicans and Democrats is hampering structural reforms and endangering social stability. On the external front, growing frictions with China—over technology and Taiwan in particular—will hamper bilateral trade between the two countries and could spark a full-blown conflict. Moreover, the U.S. will shed its relative economic clout: While in 2000, the U.S. economy was around four times the combined size of the BRIC economies (BrazilRussiaIndia and China), the BRICs will be around 15% larger than the U.S. in 2026.

 

2. China:  USD 24.3 trillion in 2026

Our panelists forecast Chinese GDP at USD 24.3 trillion, or roughly 83% of U.S. GDP, in 2026. In 2021, the corresponding figure was around 77%. Near-term economic momentum will be hampered by stop-start Covid-19 restrictions and a housing market downturn. However, China still has strong potential for catch-up growth in the longer term, given that per-capita income is only a small fraction of developed-country levels. Risks to the outlook are myriad, though. In recent years, the government has taken a more central role in the economy, which could lead to a misallocation of resources. The prolongation of strict Covid-19 restrictions would harm demand and competitiveness, and deteriorating relations with the West will continue to hamper trade and the transfer of technology and ideas. A possible invasion of Taiwan—while seemingly unlikely—is a key downside risk to the economic outlook.

“Growth will remain on a decelerating trend over the medium to long term. Rapid demographic ageing will be a primary factor. Technological change will drive productivity growth, but the self-sufficiency drive will generate economic inefficiencies. Increasing reliance on the state sector to drive economic activity will also worsen the competitive and discriminatory pressures facing some private and foreign firms.” – The EIU 

3. Japan: USD 5.4 trillion in 2026

Japan will remain the world’s third-largest economy over the next few years, with nominal GDP of 5.4 trillion in 2026 according to our panelists’ forecasts. Extensive fiscal support and the loosest monetary stance of any major developed economy will prop up activity at home. However, Japan will continue to lose relative economic clout compared to both high-income and emerging-market rivals. A shrinking population will feed through to anemic growth of 1.2% on average in 2023–2026. At the beginning of the 21st century, Japan’s nominal GDP was roughly half that of the U.S.; by 2026, it will be less than a fifth. Fiscal sustainability concerns amid an aging, shrinking population, low uptake of digital services, an ingrained low-inflation mindset and a rigid labor market cloud the horizon.

Accelerating structural reforms will be critical to boost productivity and wages and improve income distribution. Beyond the pandemic, Japan’s ageing and shrinking population will continue to depress productivity, investment, and real GDP growth. To ease the demographic-driven growth slowdown and reflate the economy, Fund staff analysis suggests that implementing a mutually supportive set of structural reforms complemented by accommodative monetary policy could over the medium term boost GDP by as much as 11 percent and raise prices by 3 percent compared to the baseline.” – The IMF

4. Germany: USD 5.2 trillion in 2026

Germany is projected to cling to fourth place, with nominal GDP of USD 5.2 trillion. While a stable policy environment and stronger government investment will support activity in the coming years, the economy will be hindered in the near term by gas shortages and tighter monetary policy. Out to 2026, a deteriorating demographic profile will weigh on growth; the population is projected to begin declining in 2025. Moreover, the shift to electric vehicles could spell trouble for the country’s crucial car industry, given the need for substantial retraining, retooling and restructuring of workforces to take advantage of job opportunities opening up in the electric vehicle supply chain.

5. India: USD 5.0 trillion in 2026

India is set to become the world’s fifth largest economy by 2026, with nominal GDP of USD 5.0 trillion, overtaking the UK. Growth will be spurred in the coming years by surging consumption, investment—from both domestic and foreign firms—and exports, while Prime Minister Modi’s Make in India agenda could spur the manufacturing sector. GDP growth will average over 6% a year out to 2026. That said, the government’s increasing attempts to pick winners could result in an inefficient use of resources, such as the USD 10 billion of public money earmarked to build an indigenous semiconductor industry. Moreover, the country’s protectionist bent—India bowed out of the Asia-wide RCEP trade deal in 2019 for instance—will dampen potential growth, as will shoddy infrastructure, significant red tape and economic scarring from the pandemic.

Despite reopening benefiting the contact intensive services sectors, the underwhelming performance of the most vulnerable segments suggests potentially deeper scarring. Outside of agriculture, which was not impacted by the pandemic, these three sectors – manufacturing, construction & trade, and hotels, transport & communication – are also the ones that employ more unorganised sector workers. Their slower rebound, despite reopening, suggests firms have either shutdown or are no longer contributing to production, whereas larger firms have thrived and gained market share. To us, this suggests that the steady state growth moderated after the pandemic struck and at this stage is running even below our estimate of 5.5-6.0%.” – Analysts at Nomura


Originally published in December 2017, updated in February 2021

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.

Author: Oliver Reynolds, Economist

Date: October 19, 2022

Twitter @FocusEconomics

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