The Economic Survey 2025-26, tabled by Finance Minister Nirmala Sitharaman in the Parliament on Thursday, warned that global growth faces rising downside risks as persistent political and economic turmoil across regions becomes a more entrenched feature of the world economy.
Presented ahead of the Union Budget on February 1, the survey cautioned that the adverse effects of this turbulence may not be immediate but could surface with a lag. It cautioned that the balance of risks has shifted markedly over the past year as geopolitical competition sharpens, financial vulnerabilities rise and the global economic order becomes more fragmented.
“Fragility, uncertainty and episodic shocks are increasingly structural features of the system, and the balance of risks has shifted perceptibly over the past year. Geopolitical competition has intensified, the security environment in Europe has become increasingly complex, and financial vulnerabilities associated with leveraged technology investments are looming,” the survey said.
Scenario One: Managed disorder
Under the first scenario, described as the best-case outcome, the global economy in 2026 resembles “business as in 2025”, albeit in a more insecure and fragile form. The survey warned that with safety buffers eroding, even relatively small disturbances could have outsized effects.
“In this setting, with the margin of safety being thinner, minor shocks can escalate into larger reverberations. Financial stress episodes, trade frictions, and geopolitical escalations do not lead to systemic collapse, but they do create volatility and require governments to intervene more actively to stabilise expectations,” the survey stated.
According to the survey, this scenario is less about continuity and more about managed disorder, with countries remaining economically integrated but operating in an environment marked by rising distrust.
Probability of this scenario: The survey has assigned a subjective probability of around 40% to 45% to this outcome in 2026. Reflecting this heightened uncertainty is the Global Economic Policy Uncertainty Index, which remains close to its worst levels since 2020.
Scenario Two: Disorderly multipolar breakdown
The second scenario is a more disruptive global outcome, where the probability of a disorderly multipolar breakdown rises materially and can no longer be dismissed as a tail risk.
“Under this outcome, strategic rivalry intensifies, the Russia–Ukraine conflict remains unresolved in a destabilising form, and collective security arrangements unravel. Trade becomes increasingly explicitly coercive, sanctions and countermeasures proliferate, supply chains are realigned under political pressure, and financial stress events are transmitted across borders with fewer buffers and weaker institutional shock absorbers,” the survey stated.
Probability of this scenario: According to the survey, policymaking becomes increasingly nationalised in such a world. This in turn forces countries to confront sharper trade-offs between economic autonomy, growth and stability. The survey assigned a probability of around 40% to 45% to this scenario as well.
Scenario Three: Systemic shock cascade
The third scenario involves the risk of a systemic shock cascade in which financial, technological and geopolitical stresses reinforce each other rather than unfolding independently.
“The recent phase of highly leveraged AI-infrastructure investment has exposed business models that are dependent on optimistic execution timelines, narrow customer concentration and long duration capital commitments,” the survey noted.
It further cautioned that a correction in this segment could have broader spillovers. “A correction in this segment would not end technological adoption, but it could tighten financial conditions, trigger risk aversion and spill over into broader capital markets. If such developments were to coincide with geopolitical escalation or trade disruption, the resulting interaction could produce a sharper contraction in liquidity, a sudden weakening of capital flows, and a shift toward defensive economic responses across regions,” it stated.
Probability of this scenario: The survey has assigned this scenario a residual probability of 10% to 20%. While this remains lower-probability, the survey stressed that its consequences would be significantly asymmetric. It warned that the macroeconomic impact could be worse than that of the 2008 global financial crisis.
“In all three scenarios, India is relatively better off than most other countries due to its strong macroeconomic fundamentals, but this does not guarantee insulation,” the survey said.