Faced with a host of structural challenges, global performance in 2026E and 2027E is likely to hinge even more than usual on the actions of policymakers. As our base case, we look for continued steady growth in major economies as governments deliver fiscal expansions and key central banks ease further, with inflationary pressures converging towards 2% targets. While policy support underpins resilient growth, serious risks from rising public debt and geopolitical tensions remain. The interplay of geopolitics and the pace of AI adoption will likely shape financial market performance.
Steady growth and narrowing inflation gaps – We look for continued growth across major economies in 2026 and 2027, supported by fiscal expansions, easing inflation and accommodative financial conditions. We expect the US to moderate to a still healthy headline pace and continue to benefit from the AI and tech revolution, and outperform a Eurozone and UK held back by structural challenges, even as growth picks up between 2026 and 2027. China looks set to slow somewhat as domestic challenges persist. We see Japan slowing, but still outpacing its anaemic potential rate. After wide gaps in 2025, we expect inflation rates to converge towards central banks’ 2% targets in 2026 and 2027.
A host of uncertainties – Despite our constructive base case, uncertainties and risks loom large. Elevated public debt levels combined with major fiscal expansions could trigger renewed bond market instability if inflation surprises to the upside. Geopolitical fragmentation and protectionism threaten global supply chains and growth in export-oriented economies. The rapid diffusion of AI technologies presents both upside potential for productivity and downside risk if labour markets weaken significantly and amplify political disenchantment.
Policymakers’ high-wire act – Fiscal policy is expansionary across major economies. But effective stimulus will likely hinge on policymakers’ ability to keep inflation in the safe zone, maintain credibility, and adjust to technological change as well as shocks from geopolitics. The US Federal Reserve (Fed) and Bank of England (BoE) are likely to continue rate cuts, in our view, while the European Central Bank (ECB) maintains an easy stance and the Bank of Japan (BoJ) normalises its policy cautiously.
