The U.S. economy enters 2026 with cautious optimism. Growth looks set to continue—helped by fiscal support and vigorous investment in artificial intelligence—yet risks from tariffs, a softer labor market, and global volatility mean the path won’t be perfectly smooth. Below, we break down how much the economy is likely to grow, what’s fueling it, and whether a recession could still happen.

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How Much Will the Economy Grow?

Most credible forecasts cluster around 1.6%–2.2% real GDP growth (year-over-year, 4Q/4Q) in 2026, with some upside scenarios reaching ~2.6%:

• Morgan Stanley projects ~1.8% in 2026 as consumer strength and AI capital spending offset early-year softness. [advisor.mo…tanley.com], [morganstanley.com]
• RSM expects a rebound to ~2.2% on fiscal and monetary easing, with AI and fading tariff impact aiding productivity. [rsmus.com]
• Goldman Sachs’ optimistic case puts growth at ~2.6%, citing tax refunds and reduced tariff drag as catalysts. [foxbusiness.com]
• A Philadelphia Fed cross‑forecaster survey centers around ~1.8% growth, reflecting a tempered but positive baseline. [investopedia.com]
• Broader consensus polling (NABE/Reuters) has moved up to ~2.0% amid stronger consumer outlays and business investment, even as tariffs remain a headwind. [money.usnews.com]

What’s Driving Growth?

1) Fiscal Tailwinds and Tax Relief

The “One Big, Beautiful Bill” (OBBBA) is widely expected to deliver meaningful tax refunds and investment incentives in early 2026, providing near‑term support to consumer spending and capex. Multiple bank outlooks flag this as a key reason the U.S. is likely to avoid contraction and sustain moderate growth. [foxbusiness.com], [rsmus.com] [morganstanley.com], [us-prod.as…rosoft.com]

2) AI Infrastructure and Productivity

Economists agree AI capital expenditure—data centers, specialized hardware, power infrastructure—remains a powerful growth engine. We’re still in a build‑out phase that lifts business investment and gradually feeds productivity gains across sectors. Even more conservative forecasts maintain AI as a central pillar of the 2026 expansion. [morganstanley.com], [qz.com] [advisor.mo…tanley.com]

3) Easing Tariff Drag and Cooling Inflation

While tariffs constrained growth in late 2025, several analyses suggest the drag may fade in 2026 as rates stabilize rather than escalate, especially alongside lower inflation and modest rate cuts, which loosen financial conditions for households and firms. That said, most forecasters still warn tariffs remain a non‑trivial downside risk to growth and inflation persistence. [foxbusiness.com], [rsmus.com] [money.usnews.com]

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Could a Recession Still Happen?

Base case: A soft landing—continued, modest growth with inflation trending down but still above the Fed’s 2% target—remains the most probable path. [investopedia.com], [rsmus.com]

Recession odds: Many credible sources place the probability of recession in the ~30–35% range. RSM reduces recession odds to ~30% amid policy support; several round‑ups report similar numbers as banks forecast “moderate growth” under uncertainty. NABE’s survey notes sticky inflation and tariff effects, but still points to slightly faster growth than earlier expected. [rsmus.com], [us-prod.as…rosoft.com] [money.usnews.com]

Labor market: Expect slower hiring rather than sharp job losses—what some call “jobless growth”—as productivity and AI adoption lift output without commensurate employment gains. Forecasts see unemployment around ~4.5% early in the year, stabilizing later as policy eases. Oxford Economics highlights this fragmented picture: high‑income households keep spending, while lower‑income households face affordability pressures—a hallmark of a K‑shaped dynamic. [advisor.mo…tanley.com], [money.usnews.com] [qz.com]

Risk Radar: What to Watch

We mapped the key risks economists cite most often:

• Tariffs & Trade Policy: Renewed escalation could lift inflation and shave growth, complicating the Fed’s path. [money.usnews.com], [foxbusiness.com]
• Immigration Constraints: Reduced labor supply may tighten certain markets while weighing on growth potential. [advisor.mo…tanley.com]
• Credit Stress & Housing: Rising delinquencies or a sharper slowdown signaled by weaker building permits would be red flags; Moody’s cautions about elevated recession risk if these worsen. [oxfordeconomics.com]
• Global Shocks & Geopolitics: Oil spikes, China/Europe slowdowns, or geopolitical flare‑ups could knock growth off course. [us-prod.as…rosoft.com], [markets.com]

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Sector Implications

• Likely Resilient: Technology, AI infrastructure, select energy (including grid build‑out), healthcare, and defense—areas tied to long‑run structural demand and public‑private investment. [morganstanley.com], [markets.com]
• More Vulnerable: Interest‑sensitive categories (certain real estate segments), discretionary retail, and manufacturing exposed to tariff or supply chain volatility. [markets.com]

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What It Means for Households and Small Businesses

• Households: Expect moderating inflation and gradual rate cuts, but affordability challenges (rent, food, credit card rates) may linger—especially for lower‑ and middle‑income consumers. [investopedia.com], [qz.com]
• Small Businesses: Conditions should improve as inflation cools and financing costs ease, but competition for talent, uneven demand, and tariff‑linked input costs could remain hurdles. [qz.com]

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Bottom Line

• Growth: The U.S. is set for ~1.8%–2.2% real GDP growth in 2026, with upside scenarios pointing to ~2.6% if consumer and AI tailwinds overdeliver. [advisor.mo…tanley.com], [rsmus.com], [foxbusiness.com]
• Recession risk: Low, but not zero—roughly ~30–35%—with tariffs, housing/credit stress, and global shocks as the main swing factors. [rsmus.com], [us-prod.as…rosoft.com]
• Policy backdrop: Easing monetary policy and fiscal support should help the soft‑landing case, though inflation may remain above 2% for much of the year. [advisor.mo…tanley.com], [money.usnews.com]