Before the outbreak of war in the Middle East in late February, our 2026 forecasts for the major advanced economies pointed to higher growth and lower inflation. However, this new conflict in the Persian Gulf is a game-changer. The resulting energy shock is of a stagflationary nature: growth forecasts are being revised downward and inflation forecasts upward, with variations observed across different countries. Most of the supportive factors that were present in 2025 are expected to remain in place in 2026, providing some buffer against the shock. Under the central scenario of the conflict losing intensity by the end of the second quarter, growth forecasts for 2026 are lowered by 0
US growth remains robust, exhibiting strong momentum, but is still reliant on a narrow base – AI on the activity side and healthcare for jobs. The energy shock presents a new challenge, and its impact will depend on both the duration and severity of the Iran war. In any case, this situation is likely to drive inflation further above the target. Our baseline scenario projects 2.4% annual GDP growth in 2026 (down 0.3pp vs. the pre-conflict outlook) and 2.5% in 2027 (+0.3pp). Inflation is expected to reach 3.2% y/y in 2026. Against this backdrop, we expect the Fed to adopt a two-sided stance, with balanced risks around the Fed Funds rate and a hold as the baseline scenario
According to our forecasts, the impact of the conflict in the Middle East is likely to restrict GDP growth to 1.0% in 2026 and 1.3% in 2027 (down from 1.6% for both years prior to the conflict). Private consumption will be hit by falling real wages (with inflation projected at 3.0% in 2026 and 3.3% in 2027, compared to initial estimates of 1.9% and 2.3%). However, the high savings rate will enable households to mitigate the impact over time. Economic activity could suffer from less favourable interest rate dynamics (we anticipate a 50bp increase in ECB rates in 2026). However, the ongoing investment in defence, AI and electrification is expected to continue and boost intra-EU trade. The expected deterioration in public finances in 2026 will be significantly less severe than in 2022.
After two years of recession, German growth began to recover in 2025. We expect it to strengthen in 2026, driven by the ramp-up of investment plans. We are, however, revising our forecasts downwards, as the German economy remains vulnerable to the current shock to energy prices (+0.8% in 2026 [-0.6pp] and +1.1% in 2027 [-0.4pp]). This will weigh on private consumption due to the impact of rising inflation (3.2% in 2026 [+1.6pp] et +3.5% in 2027 [+1.2pp]) on the purchasing power of wages. The fiscal trajectory, meanwhile, is expected to remain broadly unchanged. Public debt is set to continue rising towards 70% of GDP by 2030, which, in the current context, would maintain upward pressure on long-term interest rates.
Since rebounding in Q2 2025, French growth has been relatively robust. Things are not expected to have changed in Q1 2026, with growth supported in particular by precautionary spending. In Q2, higher inflation (and thus lower purchasing power) should weigh on household consumption, whilst support from public finances is expected to be more moderate than in 2022. However, French growth is expected to remain resilient, driven in particular by public investment (both French and European) in defence and private investment in AI. Overall, we are revising our growth forecasts to 1% in 2026 (-0.3 pp) and 1.1% in 2027 (-0.2 pp); and our inflation forecasts to 2.4% in 2026 (+1.3 pp) and 1.9% in 2027 (+0.4 pp)
Italy entered 2026 with moderate momentum, posting a real GDP growth of +0.3% q/q in Q4 2025. However, the economy faces increasing risks due to its reliance on LNG and its exposure to the Strait of Hormuz. Consequently, growth is projected to be around +0.7% in 2026 (-0.3 pp), accompanied by weaker investment, consumption and exports. Inflationary pressures are also mounting, as are energy costs for businesses. Despite these challenges, foreign trade remains adaptable. Fiscal consolidation is progressing, although fiscal capacity remains limited.
The Spanish economy is in a favourable long-term cycle, characterised by strong growth, underpinned by domestic demand. In 2026, outperformance relative to the Eurozone is expected to continue, but growth is projected to decelerate due to the weakening of its structural foundations (available labour), a lack of momentum (low productivity) and the inflationary shock. It is projected to reach 2.3% in 2026 (revised downwards by 0.2pp). Inflation is expected to rise to 3.3% (revised upwards by 1pp), which will impact household purchasing power. However, public finances are expected to have the capacity to mitigate this impact without jeopardising the trajectory of public debt ratio reduction.
Following a strong performance in 2025, the UK economy will suffer in 2026 as a result of its dependence on imported commodities, with little fiscal headroom to address the situation. GDP growth is expected to fall to 0.7%. Inflation is expected to remain persistently above the Bank of England’s (BoE) 2% target, standing at 3.6% in 2026 and 3.3% in 2027 (though this forecast will depend on the scale and duration of the conflict). However, demand is significantly less robust than in 2022, which should limit second-round effects. Nevertheless, the BoE is expected to respond. According to our forecasts, it will raise its key interest rate by 25 basis points in Q2 and then in Q3; it is expected to lower it again in 2027
The improved health of the Japanese economy is evident. Consumer confidence and the Tankan business-conditions index hit post-COVID highs before the energy shock began. The shock, however, is expected to weigh on growth, which is projected at 0.5% in 2026 (revised -0.3pp). Inflation, at 2.7% in 2026 (revised up 0.7pp), is set to remain the BoJ. The two pillars of the policy mix could remain at odds in light of the new energy shock, with the government favouring an expansionary fiscal stance while the central bank is expected to keep raising its policy rate, projected to reach 2% by end-2027.
A series of six charts showing key economic indicators (GDP, inflation, unemployment, current account balance, budget balance, public debt ratio) and comparing the situations of the major advanced economies.
Contributions of the various components of demand to quarterly growth (quarter-on-quarter, non-annualized).
Economic and financial forecasts for major economies as of April 2026.
