Brazil’s recent post-election yield shock risks leaving a lasting imprint on public finances — compounded by already high interest rates and a changing debt structure. Large refinancing needs and a rising share of floating-rate debt will transmit rapidly and significantly higher interest rates to the debt service through distinct but reinforcing channels.
Fiscal policies are heading in opposite directions. Interest payments are set to rise in all countries, as debt issued at low rates gradually matures and must be refinanced on current terms.
Germany’s primary deficit is expected to widen significantly in 2026 and 2027. Having benefited from nominal growth that was significantly higher than the apparent interest rate on its debt, Germany is expected to see this situation reverse from 2030 onwards. Driven by infrastructure investment and increased defence spending, primary public expenditure (excluding interest) is expected to rise sharply from 2026 onwards.
The reduction in the primary budget deficit remains very limited compared with the level observed in 2024. The low level of real GDP growth in 2026 (0.3%) does not prevent nominal growth from remaining above the effective interest rate (due to inflation). So far, the consolidation of public finances has relied on increased revenue.
Having returned to positive territory since 2024, Italy’s primary balance is expected to continue improving. Weak nominal growth and the gradual rise in the apparent interest rate on debt would continue to weigh on Italy’s public finances.
Primary surpluses are expected to rise steadily until 2032 (reaching +1% of GDP by then). Nominal growth is expected to remain above the apparent interest rate on public debt throughout the forecast horizon. Public expenditure excluding interest payments is set to rise slightly to around 42.9% of GDP through to 2032.
The US primary deficit is projected to remain sizable through to 2032. Population ageing exerts structural pressure on mandatory health and pension spending, while fiscal consolidation does not appear to be on the policy agenda. The primary deficit is estimated to have widened to -4.2% of GDP in 2026, from -3.2% in 2025.
The UK’s primary balance is expected to return to surplus from 2028. The rise in interest rates is expected to gradually feed through to the apparent rate on UK public debt. UK fiscal consolidation is expected to rely mainly on a structural increase in tax revenue.
Japan’s primary balance deteriorated in 2026 to -1.2% of GDP, ending five consecutive years of improvement. Nominal growth would continue to exceed the apparent interest rate on Japan’s debt, but this advantage would erode gradually. Revenue is projected to fall in 2027–2028 as a result of tax cuts.
The significant increase in business creations since mid-2025 in the United States, France and Germany – and, to a lesser extent, in the United Kingdom – is continuing. Across the board, this trend is being driven by the information and communication sector and mostly by AI. It is spreading to other business services, while developments in consumer services, industry and construction are more mixed. However, in both the United States and France, the trend is broadening, suggesting that AI is facilitating business creation across all sectors.
In the United States, growth is holding up, unemployment remains low and consumer spending shows no sign of slowing. On paper, that should flatter the president’s party ahead of the midterms. Yet, Republicans could lose control of Congress. The rise in the cost of living, which weighs on households far more than macroeconomic aggregates suggest, could be one of the reasons. On top of persistent inflation, rekindled by the war in Iran, there is also a slowdown in wage growth and rising housing costs. The election could hinge on affordability, yet whichever party wins will lack the means to address it. A change in the majority in Congress will nonetheless have an impact on the country’s economy.
As expected, the Fed, the ECB, and the BoJ left their rates unchanged this week. This pause, however, does not mark the end of the cycle. The ECB’s tone is becoming more balanced, weighing inflationary risks against tightening financial conditions, but one final rate hike in December remains our base case. Across the Atlantic, Kevin Warsh describes an environment conducive to further tightening, while remaining cautious about the risk of a credit shock. In Japan, the lasting exit from the deflationary cycle is taking shape, and monetary policy adjustment is expected to continue gradually. We anticipate two rate hikes by the Fed by January and four by the BoJ by the second half of 2028.
The private credit market raises many questions, and its lack of transparency is not helping. Official public data remain scarce. The available estimates come mainly from private sources, whose methodologies vary widely. The Financial Accounts of the Federal Reserve (Fed) now shed new light on the matter. They reveal that private credit finances 7.1% of US corporate debt through households (31% of funds’ total financing), insurers and pension funds (20%), and banks (19%).
China has never exported as much as it does now, and its trade surplus has never been higher. At the same time, its economic growth is slowing, held back by weak domestic demand. The imbalances in China’s growth model, and the external imbalances they give rise to, are therefore continuing to worsen. With Europe taking a tougher line and the United States, with which China shares nothing more than ‘strategic stability’, the standoff looks set to continue. However, the European Union and China would have a great deal to lose from a lasting deterioration in their relationship. It is in the interests of both parties to seek to restore the balance. To this end, it is important to understand Beijing’s objectives and the constraints facing China
Growth looks to have held up in Q3 despite successive shocks, as it did in 2025 and H1 2026. A longer Middle East conflict has fed into more persistent inflation; drought has worsened in many countries, and interest rates have risen further – at the short end, with both the ECB and the Fed raising policy rates in September, and even more at the long end. However, our nowcasts show that growth is bending without breaking in most advanced economies.
Seven months after the start of the war in the Middle East, which has led to a sharp rise in oil prices, sub-Saharan Africa is holding up well overall. The deterioration in external accounts and the rise in inflation are more contained than in 2022, during the last oil shock. However, this resilience is fragile and is eroding as the conflict drags on. Furthermore, an exceptional El Niño event could significantly worsen the macroeconomic environment in 2027.
The global economy’s unexpected resilience might have invited the self-congratulation that is a trademark of international official meetings. But policymakers gathered in Bangkok for the 2026 IMF Annual Meetings were wearily aware that “continued resilience cannot be taken for granted”, as noted in the prologue to the closing Chair’s Statement to the International Monetary and Financial Committee meeting. Growth forecasts remain in line with those made a year ago, when interest rates were much lower and no energy shock was in the cards, and even with those made in April, when a short shock was the base case
In 2026, the European economy will not perform better than it did in 2025. At 1.4% (IMF estimate), its growth remains half as fast as in the United States. Still, there are more and more signs that Europe is regaining strength. The energy crisis, which has now been ongoing for eight months, would have caused it to halt in other times. Beneath an apparent sluggish activity, productivity is rebounding, while many sectors are picking up steam.
On 8 and 9 October, the European Commissioner for Trade and Security, Maroš Šefcovic, will visit Beijing. The European Union’s trade deficit with China on manufactured goods stands at EUR 400 billion over a twelve-month period, driven by a surge in imports. That said, as a proportion of GDP, it is below its 2022 peak (2.1% compared with 2.5%). Furthermore, the aggregate figure masks contrasting realities: 1) with the exception of the automotive sector and Germany, exports are holding up, including service exports; 2) the loss of the Chinese market has been largely offset by third markets; and 3) the real challenge lies in the move upmarket of products imported from China
The 2027 budget, adopted by the French Council of Ministers today, calls for a reduction in France’s fiscal deficit to 5% of GDP in 2027 (down from 5.4% in 2026). This is a first step towards the multi-year fiscal consolidation needed to stabilise the public debt-to-GDP ratio. This ratio is expected to rise further in 2027 and until the deficit is reduced to 3% of GDP. Furthermore, given the increase in some expenditures (+0.6 pp of GDP for debt service and defence spending), the projected fiscal effort amounts to 1 pp. Nearly one-third of this effort would come from higher compulsory levies, and two-thirds from curbing government and social spending.
In 2026, the government once again failed to stabilise its public debt-to-GDP ratio due to a significant fiscal deficit and lower-than-usual growth. According to our analysis, this underperformance is due to exceptional factors. Structurally, France can still generate growth that will help the public debt ratio to stabilise, provided that its budget deficit is brought down to approximately 3% of GDP
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.
A pillar of the NextGenerationEU programme, the Recovery and Resilience Facility (RRF) will expire on December 31, 2026. As of the end of August 2026, slightly more than three-quarters of the total budget had been disbursed (EUR 440 billion out of EUR 573 billion). Disbursing the remaining quarter (EUR 133 billion) by the end of the year will require a significant increase compared with the historical pace (EUR 90 billion per year). The goal of channeling these funds toward productive investment appears to have been achieved.
