GLOBAL ECONOMIC OUTLOOK FOR 2026: IMPLICATIONS FOR MONGOLIA

By T. Byambanaran

2026: AN OVERVIEW OF THE GLOBAL ECONOMIC LANDSCAPE

The global economy entered 2026 like a ship navigating strong headwinds. A convergence of pressures - including geopolitical tensions, uncertainty over the trade policies of major powers, and rising global debt - continues to weigh on economic prospects. Yet despite these challenges, the world economy has avoided a broad-based slowdown. Instead, the International Monetary Fund (IMF) reports that global growth has shown notable resilience.

According to the latest World Economic Outlook report of the International Monetary Fund (IMF), the global economy is projected to grow by 3.3% in 2026. A partial easing of pressure from U.S. tariff policies, coupled with a surge in investment in artificial intelligence, has helped restore confidence in global markets.

Artificial intelligence has firmly established itself as a central pillar of today's economic agenda. It is driving movements in equity markets, influencing commodity prices and national trade policies, and, in many ways, reshaping the global economic landscape.

Despite this momentum, global economic growth remains uneven. In the United States and parts of Asia, recovery in domestic demand combined with a gradual easing of monetary policy is supporting economic activity. By contrast, growth in Europe remains sluggish, while in many developing countries, heavy debt burdens and the growing impact of climate change are constraining economic momentum.

Global output growth is projected to slow to 2.7% in 2026, underscoring that expansion remains below pre-pandemic average levels. Global trade experienced a temporary boost in 2025, with trade volumes outperforming expectations. Much of this increase was driven by the advance shipment of goods ahead of anticipated tariff hikes, providing a short-term lift to trade flows. This effect, however, is expected to fade in 2026 as trade barriers and policy uncertainty re-emerge. At the same time, investment activity has slowed across many regions, as businesses adopt a cautious wait-and-see approach.

Looking ahead, 2026 is shaping up to be a test of the resilience of countries amid sudden shifts and persistent policy uncertainty. While global economic growth has not come to a halt, conditions remain unstable and lacking clear direction. In this environment, governments and businesses will need to place less emphasis on short-term gains and focus instead on carefully designed strategies that promote long-term stability.

DEMAND FOR METALS TO DOMINATE THE COMMODITY MARKET

For countries and businesses alike, closely monitoring global commodity prices, demand, and supply remains a constant priority. Commodity markets rarely move in a uniform direction, and this pattern is expected to persist in 2026. While prices for some metals are likely to remain stable - or even trend upward - coal is expected to come under increasing pressure. In other words, the market's center of gravity appears to be shifting toward metals, while traditional energy markets may lose momentum.

The outlook for the metals market is generally positive. According to Fitch Solutions, most metal prices are expected to rise in 2026, with copper at the center of this trend. Research from Goldman Sachs estimates that copper prices on the London Metal Exchange (LME) will fluctuate between $10,000 and $11,000 this year. Investments in strategic sectors such as power grids, energy infrastructure, artificial intelligence, and defense are expected to prevent copper prices from falling below $10,000. More specifically, the average copper price in the first half of 2026 is projected to reach $10,710.

Copper demand is not a short-term cycle but a long-term structural trend. According to S&P Global, global copper demand was 28 million tons in 2025 and is projected to climb to 42 million tons by 2040, a 50% increase. As infrastructure tied to energy, artificial intelligence, and data centers continues to expand, copper has become the "invisible artery" of the modern economy. However, the study warns that without a significant increase in exploration, mining, and supply, the world could face a potential shortfall of 10 million tons of copper by 2040.

Gold is expected to maintain its status as a safe and reliable investment. Research forecasts suggest its price may fluctuate near historical highs, ranging between $4,500 and $5,000 per ounce. Ongoing geopolitical uncertainty and volatility in financial markets are likely to continue driving demand for gold.

By contrast, expectations for the iron ore market are relatively low. Increased seaborne shipping, a slowdown in China's real estate sector, and high stockpiles at ports are all expected to put downward pressure on iron ore prices in 2026. Under these conditions, the research firm ING Think projects the average price of iron ore to be around $95 per ton.

High demand for metals such as copper and gold provides a positive boost for Mongolia's export revenues, while the outlook for coal is more complex. Installed capacity for renewable energy has reached unprecedented levels, and countries are increasingly investing in wind and solar power.

China and India, the world's largest carbon dioxide (CO2) emitters, are gradually reducing output from coal-fired power plants. Even when combining the emissions of the five top-ranking countries, including the US, India, and Russia, they still do not match China's level of carbon emissions.

In 2025, coal-fired power generation in both China and India declined simultaneously for the first time since the 1970s, marking a historic milestone. Output from coal power plants fell by 1.6% in China and 3% in India last year. Experts from the Centre for Research on Energy and Clean Air noted that the transition to clean energy was the primary driver behind this decline.

This serves as a major warning about future global trends. Countries are addressing climate change in different ways, phasing out coal-fired power plants and increasingly relying on renewable energy, which could weigh on coal prices and demand. Yet, despite these energy transitions, coal production still rose in 2025, reaching record-high levels, according to Reuters.

Looking ahead to 2026, metals are expected to play a more dominant role in the commodity market, while the coal sector faces new challenges. For Mongolia, this underscores the simultaneous presence of opportunities and risks, highlighting the need to manage the structure of commodity exports carefully and respond flexibly to changing market conditions.

US-CHINA RELATIONS AND SOURCES OF UNCERTAINTY IN 2026

The relationship between the United States and China - two of the world's leading economies - plays a critical role in shaping the global economic landscape. Against this backdrop, the meeting between Xi Jinping and Donald Trump on October 31, 2025, during the APEC summit in South Korea, signaled to markets that trade tensions between the two countries might temporarily ease.

Nevertheless, US-China relations are expected to remain uncertain in 2026. Relations between the two powers were volatile in 2025, marked by escalating trade tensions and occasional flare-ups over sensitive geopolitical issues, including Taiwan. Although some trade and economic agreements were reached toward the end of the year, the future trajectory of bilateral relations remains unclear.

One of the biggest unknowns for the global economy in 2026 is President Donald Trump's tariff policy. The ultimate impact will depend on which tariffs are raised, reduced, or repealed.

In this uncertain environment, Mongolia must navigate carefully and maintain economic balance. Nearly 90% of Mongolia's total exports are directed towards China, highlighting the country's deep economic dependence on its southern neighbor. If US-China relations improve and China's economic activity strengthens, demand for commodities could rise, boosting Mongolia's export revenues. Conversely, if tensions between the two powers escalate, China's growth and export performance could slow, reducing demand for raw materials. Investment in manufacturing, real estate, and infrastructure could also contract, presenting tangible risks for Mongolia.

However, it would be an overstatement to say that any escalation in US-China relations would have an immediate impact on Mongolia. If China increases investment in domestic infrastructure, the green transition, and strategic sectors, demand for commodities such as copper and coal could remain resilient.

Taken together, the dynamics of US-China relations and US tariff policy reflect a Mongolian saying: "When one ox horn moves, a thousand horns move." In other words, a small action can trigger widespread ripple effects. While changes in US tariff policy do not directly target. At the same time, China has, for the first time, officially set the goal of building a "strong financial powerhouse." This indicates a shift in financial policy from short-term stabilization toward medium- to long-term strategic planning. It reflects an effort to move toward a more comprehensive development model aligned with the "14th Five-Year Plan." Taken together, China's achievement of 5% economic growth in 2025 suggests that the country is preparing to enter a new phase, characterized by slower but higher-quality growth.

According to IMF estimates, China's economy is expected to expand by around 4.5% in 2026 as it continues its transition toward a structure driven increasingly by domestic demand.

One of the key factors slowing this transition is the ongoing downturn in the real estate sector, coupled with weakening export growth. In response, Beijing plans to continue implementing its "anti-involution" reform policy, aimed at reducing excess capacity and rationalizing industrial structures, particularly in the steel and cement sectors.

The policy, introduced by President Xi Jinping, represents a key economic strategy aimed at curbing excessively fierce, self-destructive competition. In other words, it is designed to restore profitability, support innovation, and shift the economy from "quantity to quality." Measures under this policy include scaling back production, tightening regulatory oversight, encouraging corporate consolidation and centralization, and promoting the development of advanced technology manufacturing.

Alongside its economic restructuring, China has decided to grant import tariff reductions on 935 categories of goods starting January 1, 2026. According to the Customs Tariff Commission of China's State Council, these products will be subject to temporary tariffs set below the World Trade Organization's most-favored-nation (MFN) rates.

A statement published on the Chinese government's official website explained that the move is intended to strengthen linkages between domestic and international markets, improve the efficiency of resource allocation, and increase the supply of high-quality goods. Researchers note that the broader objective is to boost China's self-reliance in advanced technologies, promote green development, and further develop the healthcare sector.

If this policy succeeds in sustaining China's manufacturing activity, supporting domestic economic growth, and keeping demand for raw materials stable, it could create favorable conditions for Mongolia, ensuring continued demand for commodities such as copper, coal, and iron ore.

On the other hand, the tariff reductions also apply to processed and semi-processed goods from other countries, which means competition in the Chinese market is likely to intensify. This highlights that while Mongolia maintains an advantage in raw material exports, it remains at a relative disadvantage in value-added products.

Overall, China's import tariff reductions have the potential to sustain its economic activity, helping to maintain stable demand for minerals and raw materials. However, over the long term, Mongolia remains vulnerable to shifts in the external environment unless it diversifies its export structure and strengthens the capacity of its domestic processing industries.

Taken together, 2026 is expected to be a year defined not by a sharp global economic downturn, but by prolonged uncertainty. Geopolitical risks remain unresolved, US-China relations are unsettled, global trade has lost momentum, and investment growth remains slow. Yet structural trends such as artificial intelligence, advanced technologies, and the transition to green energy continue to keep the global economy afloat.

For Mongolia, 2026 is set to be a year of both opportunities and vulnerabilities. On one hand, the long-term, stable demand for strategic metals such as copper and gold, combined with China's economy avoiding a sharp slowdown, helps safeguard the foundation of export revenues. On the other hand, structural pressures on the coal market, fluctuations in US-China relations, and shifts in China's domestic policies continue to make Mongolia's economy highly sensitive to external factors.

Geopolitical tensions, global market conditions, and the interactions of major powers - all macro factors beyond Mongolia's control - will continue to shape the external environment. As a result, the need to withstand crises or market fluctuations and to adapt to changing circumstances will remain constant. In today's interconnected world, no country exists in isolation, and events on the international stage will inevitably have some impact everywhere.

Therefore, Mongolia must diversify its export structure and strengthen the capacity of its domestic processing industries in tangible ways. In other words, as the global economy faces tests of resilience in 2026, Mongolia is already confronting the challenge of adapting and bolstering its internal economic "immunity." If the country fails to turn this challenge into an opportunity, it risks being repeatedly buffeted by external shocks and market fluctuations.