History tends to repeat itself in advanced economies. Once again, growth ultimately fell short of expectations by only a small margin in the first half of 2026, despite the conflict in Iran. As early as 2025, the impact of tariffs was less severe than feared. This is a sign that structural factors (notably AI, defence and electrification) are underpinning growth in these countries and are expected to continue to do so in 2027. However, there are significant risks to the economic outlook, primarily of a geopolitical nature, with a significant upside risk to inflation and interest rates
US growth remains resilient despite successive shocks. According to our forecasts, it is expected to reach 2.2% in 2026 and 2.3% in 2027. Its main driver is still investment in artificial intelligence (AI), which has remained entirely unaffected by the energy crisis. The labour market has seen a marked improvement in job creation and a fall in the unemployment rate. Core inflation remains stubbornly high and above the Federal Reserve (Fed)’s target. Against this backdrop, the Fed has begun a hiking cycle in September, which, according to our scenario, would bring the Fed Funds target to 4.50% (upper limit) by Q1 2027. At the same time, long-term rates are under upward pressure.
Growth was stronger than expected in Q2 and is set to strengthen further in the coming quarters. According to our forecasts, it will reach 1.5% in 2027 after 1.1% in 2026. This growth is expected to be driven by investment and its knock-on effect on exports. On an annual average basis, inflation is expected to stand at 3% in 2026 and 2.8% in 2027, peaking at the end of 2026. The ECB is expected to continue its monetary tightening. At this stage, a single further rate rise, aimed at keeping inflation expectations anchored, is expected in December. The impact of rising interest rates (key policy rates and market rates) on public finances and private sector borrowing conditions will be worth monitoring.
Growth, which began in the fourth quarter of 2025, gained momentum in the first half of 2026. This momentum should continue, with expected growth of 1.1% in 2026 and 1.3% in 2027. In the short term, the main driver will still be exports, particularly to Europe, which will contribute to restructuring industry. The impact of investment plans is expected to strengthen in 2027, while domestic demand is likely to remain constrained by inflation (2.7 % in 2026 and 2.6 % in 2027), which will weigh on purchasing power. Fiscal stimulus and structural reforms are expected to continue to support growth. However, the rise in the deficit and debt levels means that the increase in long-term interest rates observed so far is mostly structural.
French economic growth will underperform in 2026, partly due to a number of exceptional setbacks. In 2027, it is expected to rebound to 1% (compared with 0.5% in 2026), supported by rising external demand (particularly from Europe). So far, businesses and households appear to be weathering the rise in inflation relatively well, although it is expected to continue (we are forecasting 2.3% inflation in 2027, following 2.4% in 2026). Fiscal consolidation remains challenging, complicated by the weak growth seen in 2026, and is expected to be implemented gradually. As a result, public debt is expected to rise, with a moderate upside risk due to the rise in sovereign-bond yields.
Italian GDP grew 0.2% q/q in Q2 2026, bolstered by household consumption and investment financed by European funds, while the manufacturing sector is not benefitting from the same improvement seen elsewhere in Europe (due to lower exposure to the tech sector). As a result, we expect growth to remain quite stable in 2026 and 2027 (0.9% and 0.8%, respectively), despite an improving momentum in the Eurozone. Inflation acceleration is mainly driven by energy prices, which are weighing on the recovery of purchasing power. Disinflation should be observed in 2027, with inflation standing at 2.1%, after 2.9% in 2026. The fiscal deficit narrowed to 3.1% of GDP in 2025 on the back of a stronger primary surplus, but the rising debt burden points to increasingly tight fiscal margins.
According to our forecasts, Spanish growth is set to remain stable at a healthy level (2.6% in 2026 and 2.2% in 2027), significantly higher than that of the euro area. Growth is being driven by consumption, investment and a labour market that is still buoyant. The industrial recovery is more pronounced than the European average due to advantages in terms of labour and energy (mix and cost). Nevertheless, in the absence of productivity gains, the labour market is approaching its structural limits, as reflected in particular by inflation that is higher than the European average. At the same time, the fiscal trajectory remains favourable, with a falling deficit and debt-to-GDP ratio, as well as a contained spread.
UK growth remains comfortably above 1% despite successive shocks, and this favourable momentum is set to continue into 2027 (growth forecast at 1.3% after 1.2% in 2026). The development of artificial intelligence is supporting economic activity, as is industry, with the impact tending to strengthen. The anticipated acceleration in inflation toward the end of the year should trigger a rate rise by the Bank of England, tightening monetary policy and weighing on domestic demand, while the contribution from foreign trade would remain neutral. This slowdown is then expected to give way, from 2027 onwards, to a gradual recovery in economic activity as monetary conditions normalise
There is no longer any doubt that the period of stagnation and deflation is coming to an end. Growth, buoyed by the global AI cycle, is expected to exceed its potential rate (0.6%) once again in 2026 (+1%) and in 2027 (+1.2%). The end of deflation is now confirmed: notwithstanding mitigation through government intervention, inflation is expected to reach 2% in 2026, followed by 2.5% in 2027. A fundamental tension remains between expansionary fiscal policy and the acceleration of monetary tightening, with a terminal rate of 2.5% (above the neutral benchmark) in 2028. These circumstances support an ongoing rise in interest rates.
GDP, inflation, unemployment, current account balance, public deficit and public debt: key indicators for the second quarter of 2026
The drivers of economic growth in each country examined.
Economic and financial forecasts as of September 2026.
