Economic Survey lists 3 global scenarios for 2026

The survey laid out three possible global scenarios for 2026, assigning probabilities to each

The Economic Survey 2025-26, tabled by finance minister Nirmala Sitharaman on Thursday, cautioned about global growth risks, noting that the adverse impact of ongoing political and economic turbulence worldwide could emerge with a lag.

The survey laid out three possible global scenarios for 2026, assigning probabilities to each.

“Fragility, uncertainty and episodic shocks are increasingly structural features of the system, and the balance of risks has shifted perceptibly over the past year. Geopolitical competition has intensified, the security environment in Europe has become increasingly complex, and financial vulnerabilities associated with leveraged technology investments are looming,” the survey said ahead of the Union Budget on February 1.

“Trade policy is now shaped primarily by security and political considerations rather than efficiency or multilateral rules,” it added.

Taken together, the Economic Survey stated that these developments suggest a world that is less coordinated, more risk-averse, and more exposed to non-linear outcomes with a narrower margin of safety.

“Financial markets are already pricing this fragility. Gold rose from $2607 to $4315 per ounce in 2025, reflecting a weakening US dollar, expectations of persistently negative real rates, and the market’s growing assessment of geopolitical and financial tail risks,” it said.

Three global scenarios for 2026, as per the Economic Survey --

First scenario:

The survey said that the best-case scenario for the world in 2026 is ‘business as in 2025’, but one that becomes increasingly less secure and more fragile.

“In this setting, with the margin of safety being thinner, minor shocks can escalate into larger reverberations. Financial stress episodes, trade frictions, and geopolitical escalations do not lead to systemic collapse, but they do create volatility and require governments to intervene more actively to stabilise expectations.”

This scenario is less about continuity and more about managed disorder, with countries operating in a world that remains integrated yet increasingly distrustful, the survey noted.

“One could attach a subjective probability of around 40% to 45% to this scenario unfolding in 2026,” it added.

Reflecting this is the Global Economic Policy Uncertainty Index, which is near its worst readings of 2020, excluding the sharp spike in April 2025 at the introduction of the reciprocal tariffs.

Scenario 2

In its second scenario, the survey stated the probability of a disorderly multipolar breakdown rises materially and cannot be treated as a tail risk.

“Under this outcome, strategic rivalry intensifies, the Russia–Ukraine conflict remains unresolved in a destabilising form, and collective security arrangements unravel. Trade becomes increasingly explicitly coercive, sanctions and countermeasures proliferate, supply chains are realigned under political pressure, and financial stress events are transmitted across borders with fewer buffers and weaker institutional shock absorbers. In this world, policy becomes more nationalised, and countries face sharper tradeoffs between autonomy, growth, and stability. One could attach a probability of around 40% to 45% to this scenario as well,” the survey noted.

Scenario 3

The third scenario, with a residual probability of 10%-20%, involving the risk of a systemic shock cascade in which financial, technological, and geopolitical stresses amplify one another rather than unfolding independently.

“The recent phase of highly leveraged AI-infrastructure investment has exposed business models that are dependent on optimistic execution timelines, narrow customer concentration, and long duration capital commitments.”

“A correction in this segment would not end technological adoption, but it could tighten financial conditions, trigger risk aversion and spill over into broader capital markets. If such developments were to coincide with geopolitical escalation or trade disruption, the resulting interaction could produce a sharper contraction in liquidity, a sudden weakening of capital flows, and a shift toward defensive economic responses across regions.”

While this remains a lower-probability scenario, as per the survey, its consequences would be significantly asymmetric. The macroeconomic consequences could be worse than those of the 2008 global financial crisis, it said.

“In all three scenarios, India is relatively better off than most other countries due to its strong macroeconomic fundamentals, but this does not guarantee insulation.”