Growth is expected to reach 1.1% in 2026, down from 1.4% in 2025, the latter benefiting from an exceptionally strong first quarter. However, GDP growth is likely to be unevenly distributed. On the one hand, the service sector is likely to gain from advancements in AI. On the other hand, households will suffer from the deterioration of the labour market, while the industrial sector will face penalties from reduced competitiveness and increased competition from China. Disinflation is expected to progress gradually, which will restrict the BoE's ability to ease monetary policy. The policy mix will be more accommodative, with part of the fiscal consolidation effort postponed until the end of the decade
The Japanese economy is caught between a rock and a hard place. Growth has begun to slow towards its potential level. Japan can boast full employment, a buoyant corporate sector and a reduction in its debt-to-GDP ratio. At the same time, inflation repeatedly overshoots the 2% target and real wages are declining, which negatively impacts consumption. US trade policy remains a risk factor, and ongoing structural issues related to weak domestic demand and limited supply in the labour market persist. Finally, long-term interest rates are rising steeply, partly due to expansionary fiscal policy, while the currency continues to depreciate. Faced with this dilemma, the central bank is expected to maintain a gradual rate-hiking approach until it achieves a terminal rate of +1.5% by mid-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 December 15, 2025.
While the Fed eased its monetary policy on 10 December for the third consecutive FOMC meeting, without making any guarantees about future action, the Bank of England (BoE), the ECB and the Bank of Japan (BoJ) are holding their respective meetings this week. The BoE is expected to cut its key interest rate, the ECB to keep it steady, and the BoJ to raise it. These decisions come amid resilient growth performance despite shocks, which should lead central banks to remain cautious, whether in terms of easing (a residual cut expected for the BoE and none for the ECB) or raising key rates (which should remain a gradual process in Japan). This climate of monetary policy neutrality could be accompanied by greater pressure on long-term sovereign rates than during the period of monetary easing.
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Equity indices, Currencies & commodities, and Bond markets.
Twice a year, BNP Paribas Economic Research invites you to take stock of the global economic situation at a dedicated conference. For the December 2025 edition, the team has chosen to review the past year and present its outlook for 2026 with Jean Lemierre, Chairman of the Board of Directors of BNP Paribas.
In today’s discussion, we delve into the public finances of emerging economies in 2025, based on an exclusive analysis of our most recent EcoPerspectives issue focused on these economies. With robust but slowing growth, rising public debt and limited fiscal flexibility, what challenges and opportunities lie ahead for these countries?
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GDP growth reached 0.5% q/q in the third quarter, well above the figures recorded for nearly three years. This outperformance came despite the period of political uncertainty that began in June 2024 and sluggish household consumption.
Between 2013 and 2018, India experienced robust productivity growth (increasing by a factor of 1.3, comparable to Vietnam, slightly lower than China, and higher than Indonesia, Malaysia, the Philippines and Thailand). However, from 2019 onwards, productivity in India has stagnated, while it has continued to rise in other countries (with the exception of the Philippines). This trend is particularly concerning given that GDP per capita remains low (in PPP, it was 2.4 times lower than that of China in 2024) and unemployment is high, especially among young people (15.6% in 2024 according to official data). Without a rapid increase in productivity, India could remain a ‘middle-income’ country.
Growth in emerging economies remained solid in 2025, driven by exports and supportive financial conditions. Global trade was stimulated by export front loading ahead of US tariff increases, as well as by the reconfiguration of trade flows and the boom in the tech sector. In 2026, growth in emerging economies is expected to remain resilient but become more moderate. Supportive factors are likely to fade and global trade is expected to slow down. Fiscal and monetary policies will continue to support domestic demand but will be more constrained than in 2025. Monetary easing will be more measured, and fiscal room for manoeuvre will be reduced by the need to curb the increase in public debt ratios.
September's US employment figures reported the highest payroll growth since April (+119k). However, this fairly positive reading could prove short-lived due to the impact of the government shutdown. For the Fed, these developments add to the uncertainty surrounding its December meeting. We are still expecting a 25bp rate cut, which is now a close call.
The Eurozone labour market remains dynamic. The unemployment rate, at 6.3% in September, remains close to historic lows, while net job creation, although slowing in 2025, continued in Q3 (+0.1% q/q). According to Eurostat, the Eurozone has created almost seven million additional jobs since the end of 2019.
This is a positive surprise, and it deserves to be highlighted in the current context: according to initial estimates, growth in the Eurozone in the third quarter was higher than expected.
There has been remarkably limited interest in Europe at recent international economic and financial gatherings, as if “Europe’s moment”, as ECB President Lagarde dubbed it back in the Spring, has already passed in the eyes of many. Meanwhile, European media outlets have been indulging in negative narratives about political risks, persistent industrial doldrums, and inability to implement reforms that might preserve Europe’s place in a world increasingly dominated by the US and China. And yet, under the radar, a lot of good things have been happening.
