Mickaëlle Fils Marie-Luce
Hello everyone and welcome to this new episode of Macroraves, the podcast from BNP Paribas Economic Research. Today we are analysing the macroeconomic outlook for advanced economies. Despite a series of geopolitical and energy shocks, the global economy is continuing to hold up unexpectedly well. I am Michaëlle Fils Marie-Luce from the communication team and in order to discuss this further in depth, I'm delighted to welcome Lucie Barette and Guillaume Derrien, both economists in the Advanced Economist team at BNP Paribas Economic Research. Hello to you both. Hello, Michaëlle.
Guillaume Derrien
Hello, Michaëlle. Hello, everyone.
Mickaëlle Fils Marie-Luce
Guillaume, history seems to repeat itself. Following the US tariff shock in 2025, growth once again sprung a positive surprise with its resilience in the first half of 2026, despite the conflict in Iran. Why has it been able to bounce back?
Guillaume Derrien
Indeed, Michael, economic growth is holding up well so far. One figure I want to point out, according to our forecast, economic activity is expected to exceed 1% in 2026 for the second consecutive year, and this across the four major economies, the Eurozone, Japan, the United Kingdom and the United States, where growth will even surpass the 2% mark. If these forecasts materialize, this would be a performance not seen since 2007, if we exclude the post-COVID recovery period.
Mickaëlle Fils Marie-Luce
Indeed, these are encouraging trends. Why in particular is economic activity holding up?
Guillaume, artificial intelligence is now recognized as one of the main growth drivers.
Guillaume Derrien
The AI cycle is supporting both business investment and global trade, with the former fueling the latter. In the United States, where the cycle is strong, investment with partial exposure to AI, for example computer equipment or software, surged by nearly 15% at an annualized rate in the first half of 2026, compared with the first half of 2025. This helped to maintain US GDP growth at an annualized average of 2.4% over the period.
Mickaëlle Fils Marie-Luce
But this trend is obviously not confined to the United States.
Guillaume Derrien
No, indeed, it is spreading widely to other major advanced economies, and in particular to countries that are part of the AI value chain. Production of machinery and electronic equipment is, for example, rising sharply in Japan. Despite the downturn in its traditional automotive and chemical sectors, German industry is also recording a very strong increase in electronic equipment output. Also, in the United Kingdom, business investment rebounded by 1.2% in the second quarter of this year, partially driven by IT spending.
Mickaëlle Fils Marie-Luce
Lucie, this industrial transition is occurring alongside a profound restructuring in Europe. Guillaume has just touched on this, so let's take two examples, Germany and Spain.
Lucie Barette
Yes. In Germany, industry is undergoing a restructuring. The automotive and chemical sectors, the country's traditional drivers, are still well below their production levels from late 2017. but the electronics sector is growing strongly. Electrical equipment manufacturers are benefiting directly from data centers and defense investments. Furthermore, in response to falling sales to China in the United States, German exports are shifting significantly towards the European Union. We also expect this trend to intensify due to the anticipated measures to strengthen the European single market.
Mickaëlle Fils Marie-Luce
Does the Spanish model confirm this European trend?
Lucie Barette
Spain is still significantly outperforming the Eurozone, with growth expected to be above 2% in 2026 and 2027. Spanish industrial output has grown by 10.9% since the end of 2019, compared with a fall of 2.2% in Germany. This momentum is driven mainly by the IT and pharmaceutical sectors. Furthermore, Spain's substantial energy advantage over other European countries is benefiting its industry. As a matter of fact, Medium-sized Spanish manufacturers are paying nearly a third less for their electricity than the rest of the Eurozone, thanks to a more favourable energy mix that is more heavily weighted towards renewables.
Mickaëlle Fils Marie-Luce
This industrial dynamism and the massive investment in infrastructure are providing undeniable support for economic activity. But there are challenges too, as cost pressures are persisting. With energy prices rebounding due to the conflict in Iran, inflation is on the rise again, forcing central banks to maintain a firm stance.
Guillaume, we are seeing a very clear resurgence in energy inflation alongside some upward pressures on core inflation. Against this backdrop, what will the roadmap for the major central banks look like?
Guillaume Derrien
Central banks are clearly walking a tightrope. Faced with higher inflation, they have already taken action. The ECB has high rates on two occasions this year, one in June and one in September. while the US Federal Reserve has increased its federal funds rates in September. Having said that, further tightening is expected in the coming months as inflation is set to rise further.
Mickaëlle Fils Marie-Luce
And how is inflation likely to develop across the advanced economies?
Guillaume Derrien
So in the Eurozone, inflation is expected to peak at close to 4% toward the end of the year. which we think will likely prompt the ECB to raise its deposit facility rate to 2.75% in December. In the United Kingdom, where inflation is also expected to peak toward the end of 2026, we expect the Bank of England to raise its key interest rate by 25 basis points to 4% in November. And in the United States, where inflation is also being driven by strong economic activity, As I said, the Fed has already raised its key interest rate to 4% in September, and we anticipate two further hikes by January 2027, bringing the rate to 4.5%.
Mickaëlle Fils Marie-Luce
Lucie, what about Japan and its central bank's decisions?
Lucie Barette
Japan is currently experiencing rising inflationary pressures affecting both prices and wages, the likes of which have not been seen for 35 years. Core inflation, excluding energy, stood at 1.9% in September and Shunto wage negotiations have settled with pay rises above 5%. Therefore, against this reflationary backdrop, the Bank of Japan has accelerated the normalization of its policy by raising its key interest rates to 1.25% in September and is planning to raise it to 2.5% by the end of 2028.
Mickaëlle Fils Marie-Luce
These monetary policy decisions and this environment of high inflation are directly affecting purchasing power. This brings us to a key question. How are households actually responding to this inflationary shock? We are seeing very different trade-offs from one country to another.
We are indeed seeing a persistent gap between the resilience of U.S. consumption and the greater caution shown by households in Europe. What is behind these divergence?
Guillaume Derrien
That's a good point, Michael. Indeed, private consumption in the United States is still robust, growing by an average of 0.6% Q&Q in the first half of 2026. This is driven partly by a significant fall in the savings rate. Meanwhile, consumer credit has also remained strong.
Mickaëlle Fils Marie-Luce
Unless I'm mistaken, We are seeing a fairly similar trend in the United Kingdom.
Guillaume Derrien
Exactly. Consumption is holding up thanks to a fall in the household savings rate in the United Kingdom, although this ratio remains comparatively higher than in the United States.
Mickaëlle Fils Marie-Luce
Lucie, in continental Europe, the reaction from households seems much more subdued. What is the situation like in Germany and France?
Lucie Barette
Indeed, Mickaëlle. In Europe, the situation is significantly more constrained. In Germany, wage purchasing power is expected to fall again in 2026, having already lost 4 percentage points since 2022. Private consumption is still being held back by energy inflation. In addition, German households' propensity to save is still very high compared with the rest of Europe, which is also advertly affecting their consumption. And what about France? French households have weathered the inflationary shock better than expected so far, with consumption remaining stable at 0.5% per year. However, purchasing power is expected to fall by 0.5% in 2026.
In the second quarter of 2026, wage growth fell below the rate of inflation for the first time in two years, which is negatively impacting purchasing power. And what do you say about Spain and Italy?
In Spain, inflation stands at 4% in 2026 and real wages are still more than 2 percentage points below the end 2020 level. Consumption is continuing to underpin economic activity, but is slowing down. It is holding up thanks to massive job creation, which has helped real gross disposable income to rise by around 15% since end of 2020, while the savings rate remained high at over 11%. In Italy, household consumption recorded its 10th consecutive quarter of growth in the second quarter of 2026. Italy's national recovery and resilience plan has helped to boost durable good consumption.
However, with energy inflation at over 17% in August and wage growth running below inflation in the second quarter, purchasing power gains are likely to erode.
Mickaëlle Fils Marie-Luce
These government schemes are also playing a key role in Japan.
Lucie Barette
Yes, in Japan, the government has provided direct fiscal support through electricity and gas subsidies, as well as a cap on petrol prices. These measures have cushioned the shock. Combined with a Shunto wage increases of over 3%, they have prevented consumption from contracted in the second quarter.
Mickaëlle Fils Marie-Luce
Households must constantly balance saving against purchasing power in their day-to-day lives. But governments too, face a very strained situation with a sharp rise in long-term sovereign bond yields, putting pressure on the public finances of some countries.
Long-term sovereign bond yields have returned to levels seen 20 years ago. Lucie, why is this situation much more of a constraint on public finances in Europe today?
Lucie Barette
The fundamental difference lies in the level of public debt, which is now significantly higher than it was 20 years ago. Public finances are also generally in a worse state in an environment of constrained growth. Guillaume, how does this constraint manifest itself?
Guillaume Derrien
Concretely, we expect the effective interest rate paid on the debt to gradually catch up with GDP growth by 2030. Under these circumstances, more fiscal consolidation achieved through improvements in primary balances, that is, the fiscal balance excluding debt servicing, will be necessary. Nevertheless, and this is a mitigating factor, the residual maturity of public debt in advanced economies is relatively long. This is particularly true in the United Kingdom and Japan, where the average maturity is above 10 years.
Mickaëlle Fils Marie-Luce
And what about the average maturity in the Eurozone?
Guillaume Derrien
In the Eurozone, these figures stands at around eight and a half years. By comparison, in the United States, the average maturity is lower at around six, seven years, which explains why the country's debt interest payment is impacted more quickly by rising sovereign bond yields.
Mickaëlle Fils Marie-Luce
Therefore, the situation is said to be particularly complex for governments. Lucie and Guillaume, what are the key takeaways to wrap up our discussion today?
Lucie Barette
I would say that advanced economies are showing that they really can adapt and are benefiting from increased investment in technology and the energy transition. However, geopolitical risk will persist in 2027 and fiscal consolidation appears to be more than necessary in the years to come.
Guillaume Derrien
Indeed, the key challenge over the coming quarters will be to strike the right balance between better control of public finances without stifling economic momentum and supporting the ongoing industrial transformation associated with the current major investment cycles. such as AI and defence in Europe.
Mickaëlle Fils Marie-Luce
Thank you, Lucie Barette, and thank you, Guillaume Derrien, for your valuable insights. Thank you.
Guillaume Derrien
See you.
Mickaëlle Fils Marie-Luce
Thank you all for tuning in today. You can find the full September 2026 issue of Ecoperspectives, as well as our detailed country profiles on our website. The link is in the description. See you very soon for another podcast. Bye-bye.
Read our last issue of EcoPerspectives: EcoPerspectives — Advanced economies | Q3 2026– Economic Research – BNP Paribas
