Prominent economist Nouriel Roubini said huge investments in artificial intelligence provided a strong stimulus to the economy in 2025, but uncertainty stemming from President Donald Trump's tariffs and policies constrained growth in the second half of the year, drawing three different scenarios for 2026.
As the new year approaches, the U.S. economy could fall into a “growth recession,” “shallow recession,” or “strong growth without dips,” according to Roubini, but the most likely scenario is the Goldilocks scenario, which is also the most positive.
Roubini argued that economic managers' views were clouded by the fact that official employment and inflation figures were not properly released for months due to the longest government shutdown in history.
Nevertheless, he noted that the common scenario is for the economy to recover after several months of below-trend growth and for inflation to gradually decline toward the Fed's 2% target. This outlook was made possible by the administration's decision to roll back high tariffs announced in April and replace them with a trade deal that included more modest increases and maintained the Fed's independence.
In this positive scenario, the key drivers of a strong economic recovery toward mid-2026 will be additional Fed easing, fiscal stimulus that has yet to be triggered, strong household and corporate balance sheets, financial security created by high stock prices and low bond yields, and strong capital spending driven by AI investments. This is further supported by the softening of tariffs due to base effects and inflation falling again as productivity growth takes hold.
The second scenario, a short, shallow recession, is less likely but not completely ruled out. Roubini said the delayed effects of tariffs could push up inflation, erode real wages, reduce consumer confidence and create a “K-shaped” gap between income groups.
Furthermore, if the debate over the AI investment bubble intensifies, there is a risk that stock prices will drastically adjust or companies will cut back on capital investment. However, even in this negative scenario, the recession is expected to be quickly overcome with more aggressive Fed rate cuts and additional fiscal support.
The third, more bullish scenario is “no decline, continued growth.” According to this scenario, the U.S. economy has proven more resilient than many expected. The slowdown in employment is thought to be due to a decline in labor supply due to immigration pressure. If artificial intelligence and new technologies lead to early productivity gains, core inflation could remain around 3%, while wages and growth rates could remain strong. In such a scenario, the Fed could hold off on cutting interest rates for an extended period of time due to concerns about the economy overheating. However, Roubini emphasizes that this scenario is not the most likely, as recent data shows vulnerabilities.
Roubini said global risks, such as escalating U.S.-China tensions and new geopolitical shocks that drive oil prices, could create vulnerabilities that could push the U.S. economy into the latter scenario. However, he points out that these risks are largely under control.
If the US economy recovers in 2026 and China maintains growth of nearly 5%, the global economy will have a significantly positive year compared to 2025, according to a prominent economist. Despite all the downside risks, Roubini argues that “cautious optimism” is a reasonable approach as we head into the new year.
*This is not investment advice.
