What's on the Horizon for the Global Economy?

Our view in a nutshell

Japan

• The LDP made a historical landslide victory by gaining more than a super majority (two-thirds), leading to political stability.
• PM Takaichi focuses on “counter-measures against inflation” as well as “national crisis management” and “growth investment”.
• We focus on the nomination of the replacements of the BOJ board members Noguchi and Nakagawa possibly on 25 February.
• We now expect the BOJ to hike in June 2026, December 2026 and June 2027 with the terminal rate at 1.50%.

China

• We expect growth to slow sharply to 4.1% y-o-y in H1 2026, as the economy face demand headwinds from multiple fronts.
• By spring 2026, the slowdown will likely have become painful enough to impel Beijing to step up stimulus to arrest the slowdown.
• We expect Beijing to step up fiscal expansion and deliver additional rate (10bp) and RRR (50bp) cuts in Q2 2026.
• We view the great divide of property and export sector unsustainable, but Beijing is not ready to provide a real solution yet.

Rest of Asia

• We expect the tech upcycle to sustain, non-tech exports to remain soft and see a mixed outlook for domestic demand.
• We expect growth to surprise above consensus in Korea, Malaysia, Singapore, Taiwan and India, and lower in Thailand and Philippines.
• Inflation is likely to inch up from current low levels, but disinflationary impulses from China will keep price pressures benign.
• The easing cycle is largely complete, but we expect residual rate cuts in Southeast Asia versus India & North Asia largely on hold.
• Korea: The twin chip-housing supercycle should drive above-trend growth and keep the BOK on hold through end-2026.
• India: A macro inflection point is underway, with cyclical growth recovery, benign inflation, and a likely pickup in capital inflows.
• Singapore: Spillovers from the tech boom and strong domestic demand should boost growth and lift core inflation to above 2.0%.
• Australia: We expect another RBA rate hike in May, contributing to a more pronounced macro cycle.
• New Zealand: With growth recovering but material spare capacity, we expect rate hikes in 2027; risk tilts to an earlier move.

United States

• We expect no cuts under Chair Powell, and the Fed to resume easing in June under a new Chair.
• Less emphasis on inflation risks and a likely shift in Fed leadership in 2026 should lead to two cuts in 2026.
• Growth has remained resilient, while inflation has continued to moderate gradually.
• We expect the OBBBA to be modestly stimulative in the near term, given frontloaded incentives and backloaded spending cuts.
• The labor market has stabilized lately, and we expect job gains to accelerate in 2026.

Canada

• We expect the BoC to hold rates through 2026, with risks skewed modestly towards a hike.
• Labor markets have shown signs of stabilization, likely allaying some of the BoC’s concerns around a steep downturn.
• Slowing domestic demand, lower energy prices and falling rents are likely to weigh on prices in coming months.

Euro Area

• We expect GDP growth to accelerate above potential from mid-2026 due to German fiscal spending and Spanish outperformance.
• We expect inflation to print below target in H1 2026 due to energy base effects. Services inflation is sticky but moderating.
• We believe the ECB has finished its cutting cycle, and expect two rate hikes in 2028 as GDP growth rises above potential.
• We expect a meaningful fiscal loosening in Germany this year, but there are risks it is offset by fiscal tightening elsewhere.

United Kingdom

• Inflation is above target, but base effects and government policy changes mean we expect a fall to close to 2% in Q2 2026.
• GDP growth slowed to 0.1% q-o-q in both Q3 and Q4. We expect growth to accelerate in 2026.
• Downside risks: weaker job market, elevated saving ratio. Upside risks: sticky services inflation, near-term fiscal easing.
• We expect the Bank of England to cut its policy rate twice more this cycle, in March and June 2026.

Scandinavia and Switzerland

• Switzerland: Inflation is near zero, but we expect it to pick up, preventing another policy rate cut from the SNB to a negative rate.
• Sweden: Economic activity is improving but the jobless rate remains high. We think the Riksbank’s cutting cycle is over.
• Norway: Norges Bank cut its policy rate twice in 2025. Inflation stays high and we expect only one more cut, in December 2026.

CEEMEA

• Türkiye: Under the new economic program, inflation continues to decrease despite some delays in meeting interim targets.
• Türkiye: Due to resilient growth and upside risks to inflation, the CBRT maintains its hawkish stance to anchor expectations.

For more information read our weekly report here.