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Question #1 for 2026: How much will the economy grow in 2026? Will there be a recession in 2026?

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2026. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I posted thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I’m adding some thoughts and predictions for each question.

Here is a review of the Ten Economic Questions for 2025.

1) Economic growth: Economic growth was probably close to 2% Q4-over-Q4 in 2025. The FOMC is expecting growth of 2.1% to 2.5% Q4-over-Q4 in 2026. How much will the economy grow in 2026?  Will there be a recession in 2026?

A year ago, I argued that “Looking at 2025, a recession is mostly off the table.”  I did go on recession watch during 2025 due to the tariffs, but I noted I wasn’t forecasting a recession. 
Even though job growth will likely be sluggish in 2026, fiscal policy will be supportive of economic growth and there will be some boost from a rebound from the government shutdown.  So,  I think a recession in 2026 is very unlikely.  Of course there are always exogenous events such as another pandemic, super volcanoes, a major meteor strike or even nuclear war.  
It is possible that we will see a pull back in AI and data center investing, and that might negatively impact growth, but that would likely be a 2027 story.   It is very likely that many of the tariffs will be ruled illegal (they clearly are illegal), but the Administration has other tools to enact tariffs (more economic uncertainty). 
I’ve expressed concern about unregulated or poorly regulated areas of finance leading to another financial crisis, but that takes a few years to happen.
Here is a table of the annual change in real GDP since 2005. Note: This table includes both annual change and Q4 over the previous Q4 (two slightly different measures).     

Real GDP Growth
Year Annual
GDP		 Q4 / Q4
2005 3.5% 3.0%
2006 2.8% 2.6%
2007 2.0% 2.1%
2008 0.1% -2.5%
2009 -2.6% 0.1%
2010 2.7% 2.8%
2011 1.6% 1.5%
2012 2.3% 1.6%
2013 2.1% 3.0%
2014 2.5% 2.7%
2015 2.9% 2.1%
2016 1.8% 2.2%
2017 2.5% 3.0%
2018 3.0% 2.1%
2019 2.6% 3.4%
2020 -2.1% -0.9%
2021 6.2% 5.8%
2022 2.5% 1.3%
2023 2.9% 3.4%
2024 2.8% 2.4%
20251 2.1% 2.1%
1 2025 estimate

  

Real GDP growth is a combination of labor force growth and productivity.  
Productivity varies and is difficult to predict, but the labor force growth will likely be sluggish in 2026.  So, my guess is that real annual GDP growth will be less than the FOMC expects, perhaps close to 2%.

Here are the Ten Economic Questions for 2026 and a few predictions:


• Question #1 for 2026: How much will the economy grow in 2026? Will there be a recession in 2026?

• Question #2 for 2026:  How much will job growth slow in 2026? Or will the economy lose jobs?

• Question #3 for 2026: What will the unemployment rate be in December 2026?

• Question #4 for 2026: What will the participation rate be in December 2026?

• Question #5 for 2026: What will the YoY core inflation rate be in December 2026?

• Question #6 for 2026: What will the Fed Funds rate be in December 2026?

• Question #7 for 2026: How much will wages increase in 2026?

• Question #8 for 2026: How much will Residential investment change in 2026? How about housing starts and new home sales in 2026?

• Question #9 for 2026: What will happen with house prices in 2026?

• Question #10 for 2026: Will inventory increase further in 2026?