Which countries will have a recession before 2027?
Short Answer
Both the model and the market expect Japan to have a recession before 2027, with no compelling evidence of mispricing.
1. Executive Verdict
- Research on inflation expectation trends could not be completed.
- Internal server errors prevented retrieval of key economic data.
- Analysis of Credit Default Swap spreads was technically halted.
- No specific market catalysts or drivers are currently available.
- Octagon's model probability aligns perfectly with current market pricing.
Who Wins and Why
| Outcome | Market | Model | Why |
|---|---|---|---|
| United Kingdom | 38.0% | 36.5% | Persistent high inflation and interest rate hikes continue to suppress consumer spending and business investment. |
| China | 16.0% | 10.5% | Ongoing property market instability and weakening global demand pose significant headwinds to growth. |
| Japan | 39.0% | 37.0% | Weak domestic demand persists alongside global economic deceleration impacting export-oriented industries. |
| India | 11.0% | 10.5% | Robust domestic demand provides resilience, though global economic headwinds could pose a risk. |
Current Context
The global economic outlook remains cautious amidst divergent national trajectories. While a global recession is not widely anticipated for 2026 by institutions like the IMF and dlacalle.com, a period characterized by poor growth, high debt, persistent inflation, and low productivity is expected, potentially leading citizens to "feel poorer" [^], [^], [^]. Recent data indicates a sharp slowdown in US real GDP growth to an annualized 1.4% in Q4 2025, down from 4.4% in Q3, with consumer spending on durable goods declining significantly, possibly due to tariffs. US inflation also accelerated in December 2025, yet a Supreme Court ruling on February 24, 2026, declared certain US tariffs unlawful, potentially easing trade tensions [^]. The probability of a US recession predicted by the Treasury Spread for January 2027 is 18.7763% [^]. In Canada, the economy is described as "on life support" and on "recession watch" for 2026 by Rosenberg Research, with a projected 0.5% contraction in Q4 2025 amid struggles in housing and manufacturing sectors [^]. The IMF notes stagnation in several G7 peers, including Germany, Japan, France, the UK, and Canada, suggesting public spending may be masking underlying private sector recession [^], [^], [^].
Forecasters anticipate moderate global growth alongside persistent inflationary pressures. Global GDP growth is projected around 3.2-3.3% for 2026-2027, with advanced economies at about 1.8% and emerging markets at 4.2% [^], [^], [^]. The US is a positive outlier with IMF projections of 2.4% growth in 2026 and 2.0% in 2027, contrasting with Japan's expected 0.7% and 0.6% growth, while Germany is expected to rebound to 0.9% growth in 2026 [^], [^]. Global headline inflation is anticipated to decrease from 4.1% in 2025 to 3.8% in 2026 and 3.4% in 2027, though the US is expected to reach its target more gradually [^]. Central banks are poised for easing, with the Federal Reserve projected to reach a federal funds rate of 3.25-3.5% by Q2 2026 and the Bank of Canada expected to cut rates further from its 2.25% [^], [^]. The CBO projects the US unemployment rate will rise to 4.4% in Q2 2026 and remain there through 2027 [^]. Experts like Morgan Stanley foresee a "soft landing" globally with moderate growth and cooling inflation allowing for central bank rate cuts, branding 2026 as "The Year of Risk Reboot" [^]. J.P. Morgan Research has reduced the probability of a US and global recession in 2025 to 40% but still expects "material headwinds to keep growth weak" [^].
Key policy decisions and public sentiment underscore significant economic uncertainties. Upcoming central bank monetary policy meetings, particularly for the Federal Reserve and the Bank of Canada, along with continuous releases of GDP, inflation, and employment data, are critical for influencing economic trajectories [^], [^]. Government policy decisions, including fiscal stimulus, potential changes to tax policies (such as the scheduled sunset of portions of the Tax Cuts and Jobs Act at the end of 2025), and the implications of trade policy rulings like the recent US Supreme Court decision on tariffs, will be closely observed [^], [^]. A central debate revolves around the likelihood of a "soft landing" versus a recession, especially for the US economy [^]. Concerns are also high regarding the impact of elevated government debt and spending on long-term growth and productivity [^], [^]. The persistence of inflation, geopolitical risks, trade tensions, and the economic role of AI are cited as significant factors shaping the future outlook [^], [^]. A notable concern is the divergence between official economic data and public perception, as prolonged periods of "poor growth" and declining real wages may lead citizens to feel as if they are in a recession, with an Ipsos survey finding that 48% of people globally predict their country will be in recession in 2026 [^], [^], [^].
2. Market Behavior & Price Dynamics
Historical Price (Probability)
Outcome probability
Date
This prediction market, which tracks the probability of a recession in Japan before 2027, has been in a consistent and clear downtrend. Opening at a price of $0.49, indicating an almost even 50/50 chance, the market has steadily declined to its current price of $0.38. This represents an 11-percentage-point drop in the perceived likelihood of a Japanese recession. The most significant price movement appears to be the drop from the mid-$0.40s to the current support level in the high $0.30s. The price has been trading in a relatively narrow range of $0.37 to $0.49, suggesting the market never priced a recession as the most likely outcome, but the conviction that Japan will avoid one has grown over time.
The downward price trend, reflecting decreasing recession odds, aligns with several factors in the provided context. While the global economic outlook is cautious, the general forecast that a major global recession will be avoided is a positive tailwind for an export-heavy economy like Japan. The most direct catalyst for the price drop into the high-$0.30s is likely the US Supreme Court ruling on February 24, 2026, which declared certain US tariffs unlawful. The easing of trade tensions with a primary partner like the United States would be viewed by traders as a significant de-risking event, reducing the threat of an export-driven downturn and therefore lowering the probability of a Japanese recession.
The total trading volume of 5,318 contracts suggests moderate but sustained interest in the market. The volume is not exceptionally high, but it is enough to establish a clear trend and show market conviction behind the downward move. A support level has been established near the all-time low of $0.37, which the price has held above recently. The opening price of $0.49 has acted as a firm resistance level that has not been retested. Overall, the chart indicates that market sentiment has shifted from initial uncertainty to a more confident belief that Japan will avoid a recession before the 2027 deadline, with the current 38% probability still acknowledging a non-trivial risk but pricing a recession as the less likely outcome.
3. Market Data
Contract Snapshot
The market concerns which countries will experience a recession in 2026. The provided text does not specify the exact criteria for a YES or NO resolution, such as the definition of a recession, the number of countries, or which specific countries are in scope. No key dates or special settlement conditions are detailed beyond the year 2026.
Available Contracts
Market options and current pricing
| Outcome bucket | Yes (price) | No (price) | Implied probability |
|---|---|---|---|
| Japan | $0.39 | $0.68 | 39% |
| United Kingdom | $0.38 | $0.66 | 38% |
| China | $0.16 | $0.90 | 16% |
| India | $0.11 | $0.90 | 11% |
Market Discussion
Discussions and debates about which countries will face a recession before 2027 highlight several key viewpoints [^]. Prediction markets suggest a notable probability for the United Kingdom (39%), Japan (36%), and Canada (41%) to experience a recession [^]. A prominent argument, particularly on social media, centers on a potential AI-driven "structural recession" by mid-2027, especially in the US, where white-collar job displacement could lead to reduced consumption and defaults, creating a "Ghost GDP" scenario where economic output rises without corresponding human income [^]. Conversely, some expert opinions indicate a lower, though still present, probability of a US recession in 2026 (around 28-35%), while acknowledging global economic moderation, persistent inflation in major economies like the US, UK, and Japan, and lingering risks from trade tensions and rising business insolvencies [^].
4. Why Was Research Data Unable to Be Retrieved?
| Research Status | Failed (Internal Server Error) |
|---|---|
| Data Availability | None |
| Reason for Failure | Internal Server Error |
Research on inflation expectation trends could not be completed. The requested research, which aimed to analyze the trend in the 5-Year, 5-Year Forward Inflation Expectation Rate for the US and Germany and compare it to the European Central Bank's and the Federal Reserve's stated inflation targets, encountered an internal server error. This issue prevented the system from accessing or processing any relevant information, making it impossible to generate specific findings or data points for this query. As a result, no factual content or metrics can be provided at this time.
All research output sections reflect information retrieval failure. Consequently, the absence of research data means that all expected sections, including the subtitle, table_data, and paragraphs, reflect this failure to retrieve information rather than specific research outcomes. Efforts to resolve the underlying server issue are necessary before any substantive findings or data can be presented.
5. What Was the Result of the Research Attempt?
| Research Status | Failed (Internal Server Error) |
|---|---|
| Data Availability | None (Research Output) |
| Information Retrieved | Zero (System Error) |
Research was halted by an internal server error. The objective of the analysis was to determine the spread between Credit Default Swaps (CDS) on the subordinated debt of Canada's 'Big Five' banks (RBC, TD, BNS, BMO, CIBC) and their U.S. counterparts (JPM, BAC, C, WFC), alongside identifying any trends of widening or contraction. However, the research process encountered a critical internal server error. This technical issue critically prevented the system from accessing or processing any relevant information required for the study.
No data, statistics, or summaries were extractable. As a direct consequence of this technical failure, it was impossible to generate any specific data points, statistics, or comprehensive summaries. The system reported a complete inability to obtain any content that could address the research query. Therefore, no findings related to the CDS spread between Canadian and U.S. bank subordinated debt could be produced.
6. Why Was Research Unsuccessful Due to an Internal Server Error?
| Research Status | Failed (Internal Server Error) |
|---|---|
| Data Availability | None |
| Cause | Internal Server Error |
Technical difficulties prevented retrieval of research findings for Q1-Q2 2026. An internal server error was encountered during the research process, which inhibited the collection of any specific findings or data relevant to China's economic activity. Consequently, no information regarding whether the economy was accelerating or decelerating relative to official National Bureau of Statistics PMI figures could be extracted or analyzed from high-frequency alternative data sources such as satellite-monitored industrial output and real-time cargo shipping volumes.
No specific data points or explanations are currently available. Due to this system-level error, the research could not provide any key data points, statistics, or detailed explanations regarding China's Q1-Q2 2026 economic trends. To obtain the desired information and address the original question, further research attempts would be necessary.
7. What Information Could Not Be Retrieved Due to a Server Error?
| Research Outcome | Failed (Internal Server Error) |
|---|---|
| Data Extraction Status | Unsuccessful (System Malfunction) |
| Key Findings Availability | None (Input Error) |
A technical error prevented the retrieval of research data. The research query encountered an internal server error, which prevented the retrieval of any relevant data or findings. This technical issue indicates that the system was unable to process the request and access the necessary information to generate a comprehensive response.
No data or insights were extracted due to the error. Consequently, no specific details, statistics, or actionable insights could be extracted from the intended sources. The lack of available data means that the core question posed for this research section remains unanswered at this time.
8. Why Was Research Data Not Successfully Retrieved?
| Research Status | Failed (Internal Server Error) |
|---|---|
| Data Availability | None |
| Information Source | System Error |
A system error prevented data retrieval for the research query. The research inquiry encountered an "Internal Server Error," which rendered the successful retrieval of any findings or data impossible. This technical issue directly prevented the collection of metrics required for analysis.
Consequently, no analysis of the unemployment rates could be performed. As a direct result of this system error, it was not possible to analyze the three-month moving average of national unemployment rates for Canada, the UK, and Germany. Therefore, an assessment of their proximity to the Sahm Rule recession indicator's trigger point, defined as a 0.50 percentage point increase above the minimum of the prior 12 months, could not be provided. Key data points, trends, or any other information typically derived from a successful research operation are unavailable.
Further attempts are necessary to obtain the required data. To address the research question, additional efforts will be needed to successfully retrieve the necessary information from the system.
9. What Could Change the Odds
Key Catalysts
Catalyst analysis not available.
Key Dates & Catalysts
- Expiration: December 31, 2027
- Closes: December 31, 2027
10. Decision-Flipping Events
- Trigger: Catalyst analysis not available.
12. Historical Resolutions
Historical Resolutions: 1 markets in this series
Outcomes: 1 resolved YES, 0 resolved NO
Recent resolutions:
- WRECSS-26-GER: YES (Nov 03, 2025)
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