By: Dr Igor Kovač
It is a charming sentence, which some attribute to the Danish physicist Niels Bohr, while others credit the American baseball player Yogi Berra.
This intellectual range in attributing the quote, from science to intuition, speaks to its profound message: predictions are often wrong. We all know this proverbially from weather forecasts. Events that arise from the interaction of a vast number of factors or variables are extremely difficult to model or to capture in a parsimonious theory. Scientists, especially economists, and increasingly also in international relations (I admit, myself included), therefore rely on autoregressive models, which ignore other factors and assume that the best prediction of a variable’s future value is its previous value. It does not take much intuition or scientific understanding to see that such models cannot predict structural shocks; they can only analyse them retrospectively. Fear of influences not captured in the model, or academic caution, led the American economist Paul Samuelson to quip that economists have correctly predicted nine of the last five recessions.
Missed predictions of 2025
The New Year period is an opportunity to reflect on our predictions from the past year and at the same time a moment to make new ones for the year ahead. In my predictions for 2025, I was most wrong about Ukraine. But not only me. I do not know a single analyst, or a regular patron of local bars, who would have said that the knot in the Middle East would unravel faster than the one in Ukraine. And where will I be wrong in my predictions for 2026?
Predictions for 2026
Efforts to end the war in Ukraine will continue and gain new momentum in February, when the last remaining nuclear arms‑control treaty between the U.S. and Russia expires. The key challenge for establishing peace will therefore be Europe – can it move from a “coalition of the willing” to a “coalition of the capable”?
In the Middle East, the fragile ceasefire in Gaza will hold. Since Hamas will not respect the second part of the ceasefire agreement, its disarmament, there will be a brief Israeli military intervention. At the same time, tensions between Israel and Iran will escalate. It is likely that Iran and Yemen (i.e., the Houthis) will be bombed again. I also do not rule out the fall of the regime in Tehran by the end of the year if today’s protests continue. I also expect continued rapprochement between Arab states and Israel.
I expect stock markets to continue rising – driven by artificial intelligence and technology companies. In other words, the bubble will not burst yet. The number of start‑up investments in quantum technology will increase, but just like in the past ten years, there will be no technological breakthrough next year or in the near future. Various aspects of space technologies, however, will become an economic boom.
The U.S. will not fall into recession. Its otherwise robust economic growth will take the shape of a K: some sectors will grow very rapidly, while others will stagnate. This economic unevenness will be the main challenge for President Trump and the midterm elections. In the past century, the party in power has won the midterms only twice. Since long‑term demographic trends and voter‑registration patterns favour Republicans, they have a realistic chance of winning. Therefore, the key will be delivering on promised investments, lowering taxes and prices, and quickly revising the U.S.–Canada–Mexico trade agreement (USMCA).
A trade truce between the U.S. and China will contribute to relative stability in the Indo‑Pacific region, although the two powers will continue to compete for influence. We can expect stabilisation of global trade flows, as according to Ernst & Young, 75% of companies have already partially localised or plan to localise production in the country of sale. The greatest danger for conflict between the U.S. and China lies in provocations by Chinese sailors and pilots in the East and South China Seas. If an accidental collision with a U.S. vessel or aircraft were to occur, it could trigger a military confrontation.
China’s domestic economic situation will continue to weaken. I expect rising indebtedness and a lack of reforms that would stimulate domestic consumption. Production will therefore remain far above domestic and global demand, global resistance to Chinese exports will increase, and China’s demographic situation will gradually worsen.
In Venezuela, the painful restoration of state institutions, completely corrupt and decayed under Chávez and Maduro, will begin. Success will depend on how many capable people return from exile. However, it must be emphasised that the alternative scenario of civil war is equally possible.
The greatest risk for the EU will not be the failure to implement the proposed Draghi reforms, nor the inability to cope with global trends or regional security challenges, but France. It is in a political‑economic free fall: fiscal expenditures (especially social transfers) are rising to levels that could “sink” the EU’s second‑largest economy; economic growth is practically zero; productivity is stagnating; the industrial base is shrinking; and the tax burden remains among the highest in the world, deterring investment. Meanwhile, political deadlock prevents the adoption of necessary measures, bringing the country dangerously close to a point where it will no longer be able to manage its challenges.
And finally, the biggest surprise prediction for 2026: the resignation of the UK government after defeat in the May local elections.
Until next year. Wishing you a healthy and joyful 2026!
