Summary
US: Growth remains resilient under a ‘triple easing’ regime, but elevated mortgage rates mean housing is a key point of strain despite Fed cuts.
Europe: Fiscal expansion becomes the main engine of recovery in 2026, with public investment reaching its highest level since the global financial crisis.
UK: Growth is set to slow as the labour market softens and fiscal uncertainty persists, keeping the Bank of England on a rate-cutting path.
China: Public investment and accommodative policy could push growth above expectations, even as AI rollout faces energy and infrastructure constraints.
US: a triple easing cycle
The US is expected to continue operating within an environment of ‘triple easing’: fiscal, monetary, and regulatory. AI investment played a key role in the economic recovery of 2025, as did the tech rally, which helped boost household wealth. To extend this momentum, it will be critical to accelerate investment in breakthrough technologies and productivity gains ─ which we think represent the only path to sustainably supporting real economic activity.
Despite a cooling labour market, consumption is expected to remain a pillar of US growth, as long as wealth effects are preserved. Slower job creation won’t necessarily signal weakness in the labour market, but rather a new structural norm driven by demographics and immigration policy. In 2026, we expect US GDP growth to hold steady at slightly below 2%.
The real estate market could be a major point of strain. Historically, monetary easing tends to support housing prices and activity. But this cycle is breaking with tradition: although the Federal Reserve (Fed) began cutting rates in 2024, the long end of the yield curve has steepened, fuelled by persistent concerns over public debt and inflation. As a result, mortgage rates remain elevated (above 6%), dampening the impact of monetary easing on the housing market.
At the Federal Reserve, monetary easing is expected to remain moderate, with a terminal rate close to 3%. It seems only a sharp economic slowdown (a scenario we do not foresee in 2026) would likely prompt more aggressive rate cuts. A change in leadership at the Fed is another key factor to watch.
Europe: fiscal engines drive recovery
In Europe, AI adoption is slower, constrained by regulation and an industrial base less focused on digital services. We expect fiscal policy to be the main driver of growth. Eurozone fiscal policy is expected to turn expansionary in 2026, with the bloc’s aggregate deficit rising from 3.2% to 3.5% of GDP.
Germany is forecasting a record deficit of 4.75% of GDP, mainly due to higher military and infrastructure spending. France is aiming for moderate consolidation, though its budget remains uncertain and vulnerable to political risk. Italy may exit the Excessive Deficit Procedure earlier than expected, thanks to stronger tax revenues and better public spending control. However, the country still faces challenges as the EU’s NextGenerationEU funding programme winds down.
Public investment across the eurozone could reach its highest level since the global financial crisis, buoyed by still-available EU funds, with growth reaching 1.2%. That said, rising borrowing costs will likely reduce fiscal space from 2027 onward, and structural deficits will remain a longer-term concern.
In this context, we expect the European Central Bank to maintain its current monetary policy stance. While growth surprises to the upside and inflation remains persistent in services, other indicators − such as euro strength, slower wage growth, and the impact of trade tensions − are broadly disinflationary for the region.
UK & China: diverging paths
The UK is seeking to offset post-Brexit losses with an aggressive trade strategy, but growth is set to slow due to a weakening labour market and fiscal uncertainty. As a result, the Bank of England is expected to continue cutting interest rates in 2026.
In China, AI plays a central role in the country’s technological sovereignty strategy. However, its rollout is challenged by energy and infrastructure constraints, particularly the surge in electricity demand from data centres and the need to modernise the national grid.
After a moderate rebound in 2025, and amid ongoing trade tensions, Chinese growth could surprise to the upside in 2026. If the recently announced public investments are implemented quickly, GDP growth could exceed 4.7%. We think the People’s Bank of China is likely to maintain accommodative policy, targeting both consumption and investment.
Geopolitically, tensions with the US over rare earths and tech components will remain elevated, despite a recent easing in rhetoric.
Conclusion
In short, 2026 will be a year of transition, in which central banks must carefully balance growth with price stability, governments must manage fiscal and geopolitical pressures, and companies must adapt to an ongoing technological revolution.
For investors, discernment will be essential to navigate an environment defined by innovation, volatility, and fragmented global trade dynamics.
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