Page 23 - The South China Business Journal

Why the Economy Will Grow 2% in 2026
The economy is sustaining 2% growth and will
continue to do so into 2026 for a few key reasons:
1£®Consumers keep spending, and

2£®Businesses are investing.

Consumers are spending because the job market
remains strong, even if it has weakened some in
recent months. People can still get jobs, and wage
growth remains above inflation. Even if necessities
are chewing up more of budgets as inflation
remains stubbornly high, consumers are at least
keeping pace. The latest data we have from early
fall shows this remains the case.

A steadily rising stock market and tax reform
putting more money into families¡¯ pockets are also
contributing to strong spending numbers.
4£®Continued deregulatory activities and greater
Businesses are investing in AI in a big way. That is policy certainty make it easier for businesses to
keeping investment numbers up and keeping lots plan and invest;
of people more than fully employed. Tax reform
promises to boost investment in other areas as it 5£®Legal immigration reforms make it easier to get
lowers the cost of all types of investment. the workers we need to grow faster;
If outside influences do not change, these two 6£®We enact legal reforms that discourage
factors alone will keep the economy growing at frivolous litigation help reduce the cost pressure on
2%, at a minimum, in 2026. everything from insurance to consumer goods; and

? How tariffs play a role: Trade flows are pushing 7£®Tariffs come down. Lesser tariffs and more free
the growth numbers up and down depending on trade would supercharge growth.
the quarter and what businesses are doing with
imports in response to tariffs. While we may see This mix of policies that emphasize the supply
one quarter depressed by a surge of imports and side of the economy is imperative to generating
another surge because of a drop in imports, these improved growth because where inflation is
swings will level off eventually. Ultimately, tariffs now, anything that spurs demand ? like more
are a drag on growth because they raise prices, government stimulus like we saw under the Biden
causing consumers and businesses to buy less. administration ? risks greater inflation.

How We Could Reach 3% Growth in 2026 What Could Slow Growth in 2026
The U.S. is by no means hemmed into 2% growth. While the right set of policies could drive the
The dynamism of the U.S. economy means there economy to 3% growth, the wrong set could
is always capacity for the economy to grow above slow it below the 2% path we are on now. Those
its potential. In 2026, we could see 3% growth, or policies would be those that:
higher, if a few key things happen:
? Slow AI investment: A wave of different
1£®AI continues booming, and most importantly, it regulatory policies from the federal government
starts seriously boosting worker productivity; and the states would slow business investment
in data centers and other factors needed to bring
2£®The positive economic benefits from the AI to consumers. This would cause a pullback in
One Big Beautiful Bill take off in 2026, such as financial markets and cause a slowdown in on-
improved incentives for businesses to invest, the-ground activity. It could lead to a consolidation
leading to an even bigger investment boom that of businesses engaged in bringing AI to market
encompasses more than AI investment. Large and a reduction in asset prices tied to the ongoing
refunds and reduced withholding could add extra investment boom;
juice to the economy in 2026 as well;
? Raise tariffs: New, higher, or expanded tariffs
3£®Permitting reform makes it easier and faster would cause consumers and businesses to pull
to build; back and will slow growth; and

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