Flat global GDP growth underpins sovereign outlook, but risks abound.

With a tepid outlook for the world economy in 2026, the outlook for global sovereigns is neutral too, says Fitch Ratings.

In a new report, the rating agency said it expects global GDP growth to be generally flat in the year ahead, despite an array of downside risks, including the threat of rising trade tensions, weaker growth in China, and a downturn in financial markets.

“Greater clarity on U.S. tariff policy has now emerged after a flurry of announcements and deals but much of the impact is yet to bite,” Fitch said. 

And, in 2026, there will likely be ongoing trade-related uncertainty, it noted — amid the erratic U.S. approach to tariffs, ongoing legal challenges to those levies, and a planned review of the North American trade deal that has tempered the effects of higher tariffs so far.

Additionally, geopolitical risks remain a factor, and they could intensify, given “the shift underway in U.S. foreign policy, the U.S.-China power rivalry, military conflicts, elections, fiscal strains, populism and disillusion about inequality, corruption and youth employment prospects,” Fitch said.

Public finances are also under growing strain in several major economies, it noted.

“Fiscal consolidation will be painful for many sovereigns and aggregate government debt will continue to rise rapidly reflecting sizeable budget deficits in some of the world’s biggest economies, including the U.S. and China,” Fitch said. 

Moreover, government finances will face headwinds from rising interest costs, sluggish growth, structural spending pressures and political challenges, the report noted.

That said, sovereign rating outlooks are “broadly stable going into 2026,” Fitch reported — following eight net upgrades in 2025, including seven upgrades in emerging markets.