2026 baseline scenario
- Economic Growth: slightly faster growth is expected in the United States and the eurozone, with growth rates of 2.9% and 1.6% respectively. Most emerging economies are expected to experience solid growth, although slowing in some cases, including China.
- Inflation: inflation is expected to remain near 2% in the eurozone but above this target in several countries, including Japan, the United Kingdom, and the United States.
- Monetary policy: central banks are expected to reach a neutral stance after a period of restraint, with fewer rate cuts expected globally.
- Fiscal policy: broadly neutral (expansionary in Germany and Japan, potentially in the US, restrictive in other cases including France and Italy). The almost universal rise in debt-to-GDP ratios is likely to continue, and therefore likely to exert upward pressure on long-term bond yields.
The know unknowns
- Federal Reserve: key developments to watch are the choice of Jerome Powell’s successor and the ongoing proceedings impacting Fed governance, including the Supreme Court's decision on the President's power to remove Fed governors.
- Global trade: the Supreme Court's verdict on President Trump's bilateral tariffs and the USMCA's renegotiation could lead to a reconfiguration of U.S. tariffs. Trade tensions between China and its main partners, notably the EU, are also worth watching.
- Artificial Intelligence: the continued hype around AI should support global trade and economic growth, but a correction is possible if optimism about profits or productivity gains wanes.
- Geopolitics: the prospect of a lasting ceasefire between Russia and Ukraine and elections in several countries could impact growth and market outcomes.
The unknown unknowns
- Scientific Breakthroughs: the acceleration of scientific discoveries under the effect of AI, particularly in the fields of life sciences, materials, and clean energy, could have a major economic impact.
- Wars and regime changes: the world is more prone to armed conflict and regime change, which can have unpredictable consequences, including on the macroeconomic front, when key supply chains are affected.
Conclusion
2026 will probably not be quieter than 2025, but with a cool head, it will be possible, as in 2025, to achieve good results. Economists and policymakers will need to remain vigilant to the challenges and opportunities ahead.
There should be much fewer central bank rate cuts globally, but this is not expected to dampen growth as monetary policy will have reached a neutral stance after being restrictive for three years.
