Macro forecasts, fragmentation, and strategies for emerging and middle powers

Emerging markets and global outlook

Macro Forecasts, Fragmentation, and Strategies for Emerging and Middle Powers in 2026

As we navigate 2026, the global macroeconomic and geopolitical landscape is marked by cautious optimism, rising fragmentation, and strategic resilience. Key institutions like the IMF, S&P, T. Rowe Price, and central banks provide a nuanced outlook—highlighting moderate growth amid persistent risks—while trade and technological fragmentation reshape the influence of emerging and middle powers.

Global Growth and Risk Outlook

Economic growth is projected to hover around 2.7–3%, reflecting a world grappling with structural inflation and supply chain realignments. The IMF and S&P note that inflation remains entrenched, driven by regionalized supply chains, elevated energy costs due to ongoing fossil fuel tensions, and demographic pressures increasing wages in critical sectors. Central banks are balancing rate hikes to curb inflation without tipping economies into recession, emphasizing structural reforms in energy, labor markets, and supply resilience.

Trade fragmentation and global imbalances are central concerns. The WEF and EBRD warn that regional trade corridors are expanding, driven by geopolitical decoupling and protectionism, which undermines multilateral institutions. Countries are investing in domestic resource sovereignty and regional processing hubs—for example, Malaysia’s semiconductor and rare earth strategies—to reduce over-reliance on global supply chains and increase resilience.

Global assessments highlight a shifting balance of influence—with emerging markets asserting more agency. Kristalina Georgieva of the IMF underscores that EM economies are diversifying reserves and currencies, favoring regional currencies and financial instruments to weaken dollar dominance. This trend signals a multipolar reserve landscape, reflecting strategic resource management and technological innovation.

How Emerging and Middle Powers Hedge Between U.S. and China

In this complex environment, emerging and middle powers are actively hedging their strategic bets, especially in the face of tariffs, supply chain shifts, and resource competition.

Regional Integration & Alliances: Countries like India, Malaysia, Canada, and Britain are expanding intra-regional trade and forging strategic coalitions to reduce dependence on U.S. and Chinese markets. India is leveraging digital currency initiatives and infrastructure investments to extend its influence, increasingly positioning itself as a regional pivot.
Resource Sovereignty: Nations are investing heavily in domestic mineral reserves and resource processing. Malaysia’s focus on semiconductor and rare earth industries exemplifies efforts to assert resource independence and build supply chain resilience amidst resource competition and geopolitical tensions.
Technological Sovereignty: The AI arms race underscores the shift toward self-sufficient innovation. Countries like India and Vietnam are developing sovereign AI frameworks to reduce reliance on foreign providers. Recent AI summits have attracted significant private investments—such as Thrive Capital’s $1 billion commitment to OpenAI—highlighting AI’s strategic importance.
Covert Geopolitical Realignments: Countries are establishing clandestine trade pacts and regional coalitions to bypass traditional multilateral constraints. For instance, China’s resource ties and African mineral shipments increase trade fragility and frictions, prompting nations to invest in regional processing hubs to diversify influence and mitigate over-concentration.

The AI and Infrastructure Race: Escalation and New Frontiers

The AI arms race is intensifying, driven by massive private capital inflows —with $1.5 trillion directed toward digital infrastructure such as regional data centers and autonomous logistics hubs. Countries are building resilience through regional AI platforms, local data sovereignty initiatives, and cybersecurity enhancements.

Security threats are mounting:

IP theft via model distillation attacks—particularly by Chinese labs—pose significant risks to industrial resilience.
Cyber warfare is increasingly frequent, prompting mid-sized powers to fortify cyber defenses.

Fragmentation and Strategic 'Flexilateral' Diplomacy

A notable development is the rise of ‘flexilateral’ diplomacy, emphasizing regional cooperation over global multilateralism. Countries are leveraging climate policies and resource sharing frameworks to navigate geopolitical tensions. This shift reflects an understanding that regional alliances can enhance resilience amid fragmented supply chains and resource conflicts.

Outlook and Investment Implications

Despite moderate global growth, the layered risks from fragmentation, resource competition, and geopolitical rivalries demand strategic agility:

Investments in AI infrastructure, autonomous systems, and regional data sovereignty are poised for growth.
Semiconductor manufacturing and resource recycling will help mitigate over-reliance on volatile supply chains.
Cybersecurity firms are increasingly vital, protecting critical infrastructure from IP theft and cyber threats.
Regional supply hubs will be key in navigating geopolitical disruptions.

Concluding Remarks

The world in 2026 is characterized by strategic fragmentation paired with resilience-building efforts. Emerging and middle powers are asserting greater agency—through regional integration, resource sovereignty, and technological independence—shaping a multipolar global order.

Success hinges on foresight, strategic partnerships, and adaptive resilience. As private capital continues to pour into AI and industrial tech, stakeholders—governments, corporations, and investors—must navigate this layered landscape carefully. Balancing competition with cooperation will determine whether the global community can avoid full fragmentation and maintain stability and prosperity in this evolving geopolitical environment.

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