TL;DR: Most leading forecasts point to slower growth or a mild recession in 2026. Scenario planning gives HVACR distributors a way to prepare for that reality. The goal is not to predict the downturn’s depth, but to be ready for it. Good plans bend before they break.
Economic Outlook for 2026
Forecasts from the IMF, Deloitte, OECD, and the University of Michigan all point to below-trend growth in 2026 — between 1.5 % and 2.2 %. None rule out a mild recession. The consensus view suggests inflation will continue to ease gradually, though not return to pre-pandemic norms. Tariff effects and global supply chain realignments are keeping some cost pressures alive.
Recent Producer Price Index (PPI) data shows wholesale inflation rising about 2.6 % year over year as of August 2025, with a slight –0.1 % month-to-month decline. Goods remain elevated while services soften, suggesting input costs are stabilizing but not receding. For distributors, this means costs will stay uneven — particularly in equipment, metals, and transport.
Global trade patterns are also shifting. The U.S. share of global goods exports continues to slip, while Mexico has emerged as a manufacturing hub and the largest U.S. trading partner. Many manufacturers now assemble in Mexico to balance access to both the U.S. and China, a strategy that shortens supply chains but can introduce new capacity bottlenecks.
In parallel, Southeast Asia and India are absorbing portions of China’s former export capacity, while Europe’s energy-intensive industries retrench. These shifts create new supply risks and cost variability for distributors — even if they do not directly import goods. The source of HVACR components increasingly determines pricing, warranty terms, and delivery stability.
For distributors, that means demand may stay flat or dip modestly before improving in late 2026 or early 2027. Planning for contraction is no longer pessimistic. It is prudent.
Why Scenario Planning Matters
Budgets are static. Markets are not. Every distributor who has lived through price spikes, tariffs, or supply chain shocks knows how quickly assumptions can crumble.
Looking ahead to 2026, the indicators point to a cooling economy. Construction starts are softening, financing costs remain high, and backlog work is thinning. Even if a downturn is mild, it will pressure distributors who planned for steady growth.
Scenario planning helps distributors prepare for uncertainty. Instead of asking, “What will happen?”, you ask, “What could happen, and what would we do if it did?” The answer starts with assuming that some form of slowdown is likely — and planning how to bend without breaking.
Building Three Scenarios
A good plan needs three lenses:
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Base Case: A mild recession or flat market. Pricing holds but volume dips. New construction stays soft, and replacements slow.
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Upside Case: The slowdown proves short. Energy incentives or a rate cut boost demand midyear.
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Downside Case: A longer contraction. Projects stall, capital spending pauses, and distributor inventories build.
Each of these should connect back to your SOM calculation. Even if the total market contracts, your obtainable market may expand if competitors pull back.
Key Levers to Model
Scenario planning only works if you test the right variables. For distributors, four matter most.
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Volume vs. Price. What happens if unit volume drops five percent but average selling price holds? Or if price softens while fixed costs stay high?
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Channel Mix. How would a ten percent shift toward ecommerce change your branch or sales staffing model?
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Customer Concentration. What if your top contractor defers spending or shifts loyalty? Could you replace that volume fast enough?
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Product Mix. What if demand tilts sharply toward service parts and away from new installs? Would your inventory strategy keep up?
The goal is not precision. Planning rarely gets it perfect, but it makes you ready to act.
What to Do with the Output
Once you have the scenarios, pressure-test your plan.
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Headcount. If revenue slips five percent, what roles would you hold open? What happens if it grows five percent instead?
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Inventory. How much of your working capital is tied up in the upside scenario? Could you unwind it if demand slows?
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Territory Coverage. Would your sales team need to reallocate time or regions under each case?
Write down the answers. Define triggers. “If we move from base to downside, we….” Scenario planning only works when those actions are visible and agreed upon before stress hits.
Where CMG Fits
At Channel Marketing Group, we help distributors build frameworks that make this process easier. One-pagers that tie market data, pricing trends, and share assumptions together. Branch-level playbooks that let managers see their exposure and plan for headroom.
These are not predictions. They are confidence maps. Tools that help leadership act faster when the market moves.
Call to Action
A slowdown does not have to mean decline. It just changes the math. If 2026 brings a recession, the distributors who plan for multiple outcomes will be the ones positioned to gain share when the market stabilizes.
Markets bend. Good plans bend with them. Great plans anticipate the bend.
As you build your 2026 plan, run at least one upside and one downside scenario. Even a rough sketch will surface weaknesses before they become surprises.
👉 Next in the series: Using market intelligence and customer input to refine assumptions midyear.
