Better-than-expected growth points to a stable US, European outlook

Conditions in the global economy at the start of 2026 look relatively more favourable than our initial expectations. Growth in key economies from the US to Europe and China, was stronger than anticipated in 2025, and forward-looking surveys also indicate expansion. Despite the continuing impacts of US tariffs on consumers and trade, we expect global growth to stay close to potential, and broadly stable compared with 2025’s levels.

The US, European – and to a lesser extent – Swiss economies all outperformed our outlooks for 2025. We have therefore raised our growth forecasts for the US and euro area to 2.2% and 1.5% respectively for 2026. Importantly, the private sector remains solid, we expect the Federal Reserve to resume its interest rate cutting in the second half of 2026, and the European Central Bank has already reduced its policy rate to neutral. In addition, a modest fiscal impulse is visible in the US and a more significant one in Germany, Europe’s largest economy.

We see US growth stabilising rather than accelerating

Our outlook for the US economy in 2026 has therefore shifted from softening to more stable growth. The US proved resilient in 2025, with tariffs less damaging than initially feared, thanks to a series of exemptions and deals that reduced the applied duties. If the Supreme Court eventually rules that some tariffs were illegally applied, their impact will be further contained, even if we expect most of these tariffs to be reintroduced under alternative legislation. While the American job market continues to soften, we see no indications of a recession. January’s credit card data already indicate a healthy expansion in consumption, and we expect to see fiscal stimulus modestly supporting domestic demand. However, in today’s soft ‘no-hiring, no-firing’ labour environment, we do not expect a repeat of the consumption boost previously fuelled by the financial-market gains.

For these reasons, we see US growth stabilising rather than accelerating. We continue to expect the Fed to make three interest rate cuts in the second half of this year, as inflation, excluding the goods impacted by tariffs, continues to decline. We see US inflation averaging 2.5% over the year.

In the euro area, our economic outlook reflects higher-than-expected growth, historically low unemployment, and more positive business confidence. All in all, this will keep growth in the region slightly above potential levels. These trends are supported by the European Central Bank’s neutral interest rate - after a cumulative 200 basis points of cuts - and fiscal stimulus from Germany that is creating meaningful momentum and is already showing up in defence and infrastructure spending.

In the euro area, our outlook reflects higher-than-expected growth, falling unemployment, and more positive business confidence

Switzerland has managed to avoid the most damaging scenario of persistently high tariffs, and growth this year will be similar to 2025’s 1.2%. The country now faces the challenges of a strong currency – although its exchange rate versus the euro is more important than against the US dollar – and its impact on inflation, which we now see averaging 0.5%. Our expectation is that only an extreme event would push the Swiss National Bank to resort to an interest rate cut into negative territory; instead, the SNB will be more active in intervening in currency markets to contain the Swiss franc’s strength.

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We expect China to provide fiscal support to generate near term stability and recently raised our growth forecast to 4.3% for 2026. Domestic demand remained weak in the second half of 2025, but a planned meeting between Presidents Trump and Xi Jinping in April, and some slight appreciation in the yuan, will help maintain the external balance and limit trade tensions going forward. Despite US restrictions, export performance proved exceptional last year, though it will ease in 2026. We expect local governments to begin deploying their accumulated bond proceeds into infrastructure, supporting a rebound in activity. The US’ approval of semiconductor exports complicates China’s self sufficiency ambitions but is positive for broader AI implementation, including datacentre investments. Inflation is likely to edge higher, and we expect the central bank to ease monetary policy again, while avoiding measures that would put pressure on the currency.