Is the economy getting worse for the rest of 2026? Should we hope for an OK outcome, or brace ourselves for the worst case? And for that matter, what can we expect in 2027 and even beyond? Forecasting is never easy. It has, however, become much harder of late due to the effect of politics, geopolitics and the usual variations in core economic drivers such as inflation, interest rates, supply chain gyrations and unemployment.

Positive predictions

We can start with the “OK” scenario. This assumes a settlement of some key issues and a general calming of political influence, which is not a far-fetched notion as the midterm elections often play a role in reducing economic tensions. There is pressure to react to what voters pay the most attention to—their economic situation. That creates an incentive to find a way to end the oil crisis by ending the Iran war. It puts pressure on politicians to reduce actions that push inflation or higher levels of joblessness. There are at least three areas where political decisions could play a major role, and there is a decent chance that there could be some progress. 

The first and most obvious is the Iran war. It was not supposed to be like this. The expectation was that strong pressure from the United States and Israel would force the Iranians to back away from controversial attempts to develop nuclear weapons and support global terrorism. It has obviously not turned out to be that simple, and now there is a stalemate. Analysts assert that there is a chance for a compromise. If that happens, the oil markets would calm down, and energy­-driven inflation would start to cool.

The second major political influence is the tariff and trade war policies that have marked President Trump’s second term. It is important to note that there are two motivations for tariffs. The ostensible one is to protect U.S. domestic production from foreign competition. These tend to be in place for extended periods of time. The other function of a tariff is as a negotiating tool. If a government wants a certain behavior from a given nation, it can threaten economic damage through the use of tariffs. These are often short-lived, as they are lifted when there is compliance with the demand. 

Most of the current tariffs have been of this variety and often have nothing to do with U.S. production or the economy. They also change quickly, which has been the primary complaint from businesses. Frustration is building over these rapid changes, which has provoked more opposition to using tariffs this way. If there is reduced emphasis on tariffs and trade wars, there is a sense that inflation could fall back to around 2.5% and growth would return to the 3.0% level sported through most of the second quarter. Job growth would also resume. 

The third area of political influence comes with every election. Now that the primary fights are over, this means a steady discussion centered on issues such as inflation and job growth. There is intense conversation regarding how to lower prices involving everything from ending the Iran war to pushing an agenda that allows price reduction. Suddenly there is talk of job programs, affordable housing and energy development—a whole host of programs that politicians pledge will be at the center of their efforts if elected. Companies react to these promises, and that stimulates growth and employment—at least for a while. This “OK” alternative has a 25% chance of developing in the next several months.

What if things stay the same?

The next up is the “worse” scenario, which, frankly, is a continuation of the current environment. The United States and Iran continue the war, so the Strait of Hormuz remains closed to most ship traffic. The oil crisis deepens and prices continue to rise—perhaps staying above $100 a barrel for an extended period of time. The core issue is that the United States and Iran have leverage; it becomes a matter of which nation can hold out longer. The Iranians look at the U.S. election and the pressure building on the GOP and the president, and they think the United States will back off first. The United States assumes that Iran cannot take more military punishment, but the hardliners that govern Iran are willing to tolerate significant damage to their nation rather than give up power. It is a stalemate that shows little sign of easing. 

The tariff wars continue, and that amplifies the inflation threat, which has been renewed as a negotiating tool. Canada and Mexico are pressured over the extension of the USMCA agreement. These tariffs often harm U.S. production competitiveness as they create much higher pricing for needed components and commodities. 

On the other hand, tariffs and nontariff barriers can make U.S. manufacturing more successful, given that many imports come from nations that manipulate trade patterns and have systems that artificially prop up their industrial capacity. It is always a fine line. Traditionally, the United States has favored very low tariffs because that policy benefits the consumer. The problem is that waves of imported goods come at the expense of domestic capability. It seems to have been forgotten that for consumers to spend, they need to have jobs that pay them enough to consume. 

If there are struggles to compete globally, there is the risk of increased joblessness. The battle over immigration comes at a very challenging time for the U.S. business community. Those predictions of a massive recession in 2030 are based on the “demographic collapse.” It is inevitable, as by 2030 every baby boomer will have reached retirement age, which is more than 72 million people leaving the workforce. At the moment, some 7 million people are ostensibly seeking work and 9 million jobs are on offer. The problem is that the 7 million job seekers do not have the skills and experience that those offering work are looking for.

Immigration was once the solution, but too few of those seeking entry into the United States have the skills needed, and there are very limited opportunities for the unskilled. The need for immigrant labor remains very high in sectors such as agriculture, food service, construction, healthcare and personal services. These jobs are generally low-paying and do not attract domestic job seekers. Tough immigration policies will play a bigger role in the agricultural community as harvest time arrives. This results in inflation over 3.5% and potentially headed for as high as 4.5%. Growth will be as anemic as it was at the end of Q2—around 1.2%. Unemployment ticks up towards 5.0%. Most projects are stalled as the investment and financial communities get nervous. This scenario gets a 50% chance.

Or, things could get more disastrous

That leaves the worst option. The oil crisis worsens dramatically as the world’s reserves are drained. It has already been reported that global oil reserves are nearing dangerously low levels. At the start of the Iran war, there was a comfortable level of supply—a 5-year high of 8.2 billion barrels. Since February, there has been a draw of 440 million barrels from reserves, or about 6 million barrels a day. The vast majority has come from the United States as the largest stockpiler of crude. 

China has also been stockpiling oil but has shared very little of it with the rest of the world. The United States has drawn down 66 million barrels, leaving it with about half its normal capacity. It will be only a few more months before these reserves are tapped, and most governments are now refusing to supply any more from these reserves. If this continues, the per-barrel price shoots up to $150 or more, utterly crippling the supply chain. Major ports are already reporting acute limits on bunker fuel, and this strands even more shipping. The maritime sector has already seen massive inflation that has started to affect global retail. The cost of a container has ramped up drastically—an eight-fold increase in just a few months. Global container shipping has risen by 70% in just a few months and that trend is expected to continue. 

More than just oil and gas is affected. Many critical products come from the Middle East, such as helium used in chip production, sulfuric acid used in copper smelting and a whole raft of petrochemicals used in everything from plastics to fertilizers. The medical sector has become deeply fearful regarding its supply chain. Inflation across the board ramps up and could hit as high as 8.0% or higher (pandemic levels). These economic crises trigger widespread civil conflicts and wars, which stimulate massive waves of migration. Today, it is estimated there are more than 42 million refugees in the world, and this number would likely significantly increase with an extended period of hyperinflation in these poorer nations. 

In developed nations, shortages occur in every sector. Layoffs start to accelerate as companies try to adjust costs. There is nothing government can do to stimulate the flagging economy as that just makes inflation worse. This is the prelude to a real recession—inflation near double digits, high unemployment and negative growth numbers. This scenario has a 25% chance.

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