As in 2022, the energy shock will affect emerging and developing economies. Today, as in the past, this shock is a negative-sum game between importing and exporting countries. Furthermore, although this is basically a supply shock, central banks in emerging economies may tighten their policies if they need to counter downward pressure on exchange rates, in order to prevent inflation from rising too sharply. However, compared to 2022, there are mitigating factors: 1/ the absence of a shock to agricultural commodity prices so far; 2/ AI, which is an external growth driver for Asian countries in particular; and 3/ the Fed is expected to adopt a more accommodative stance than in 2022 in response to the anticipated rise in inflation
The latest economic news.
The latest economic news
President Donald Trump has picked former governor Kevin Warsh to replace Jerome Powell as Fed Chair from mid-May. This decision has been perceived as reassuring by the financial markets. Nevertheless, his term could prove to harbour some surprises.
Kevin Warsh is set to succeed Jerome Powell as Federal Reserve Chair in May 2026, pending Senate confirmation. President Donald Trump has picked a figure whose public and private track record is likely to reassure the financial markets. While Warsh has advocated lower rates and a reduction in the central bank's balance sheet, he will probably be constrained in his plans. Therefore, we do not expect any material shift in monetary policy in the short term.
The FOMC decided to keep interest rates steady at 3.5% – 3.75% at its 27–28 January meeting, following three consecutive rate cuts at the end of 2025. Solid economic growth and easing concerns about employment prompted this decision, and we now expect the Fed Funds target range to remain stable throughout 2026, with no interference from the question of Chair Jerome Powell's replacement. As such, the Fed would join the ECB in maintaining the status quo. The Bank of Japan and the Bank of England would continue to be exceptions: the former by raising rates and the latter by continuing its gradual easing.
Business climate, households confidence, labour market, inflation in Q4 2025: our quarterly Pulse of the economic conjoncture
The issue of European sovereignty has been on everyone's mind recently. Among its many dimensions, sovereignty in retail digital payments is often cited as an urgent gap to be filled. In fact, two-thirds of digital payments in the Eurozone rely on non-European providers, mainly American. However, this situation is not inevitable, and 2026 could well be the year when a European alternative takes off and reaches critical mass.
Growth is expected to have accelerated or at least remain steady across all regions in Q4. This is reflected in our nowcast for the Eurozone (+0.4% q/q) and the Atlanta Fed's GDPNow (+1.3%q/q). In France, after a very good figure in Q3, our nowcast suggests another strong performance (+0.3% q/q), as does our forecast for Spain (+0.7%). Our forecasts point to improving growth figures in the United Kingdom (0.2%), Italy (0.2%) and Japan (0.3%); the same goes for the figure published in China (+1.2% q/q).
In 2025, emerging economies successfully navigated various shocks, including US protectionism, conflicts, and geopolitical tensions, largely due to Chinese exports, monetary easing, and ongoing disinflation against a backdrop of falling oil prices. Overall, financing conditions remained favorable, at least during the first half of the year, with most currencies appreciating against the dollar. In addition, macroeconomic imbalances, particularly external ones, were kept in check. For 2026, a slowdown in growth is the most likely scenario, but stabilization or even consolidation cannot be ruled out. Asia is expected to remain the most dynamic region.
2026 could prove to be just as turbulent and resilient as 2025 in economic terms. The use of the term “turbulent” is justified considering the geopolitical developments and tensions that have already marked the beginning of this year, and which constitute an additional source of uncertainty (the immediate short-term economic impact is expected to be minimal, with low oil prices offsetting the negative effect of increased uncertainty). The second term reflects a crucial aspect of our baseline scenario. However, it remains to be seen whether the global economy, and advanced economies in particular (the focus of this editorial), will manage to navigate the challenges ahead as they did in 2025
On 1st January 2026, Bulgaria became the 21st member of the Eurozone, nineteen years after joining the European Union. Since June 2025, Bulgaria has satisfied the EU's convergence criteria, which include price stability, sustainability of public debt, exchange rate stability and long-term interest rate stability. The European Parliament granted its approval in July 2025, and shortly thereafter, the rating agencies Fitch and S&P upgraded Bulgaria's sovereign rating from BBB to BBB+.
Most years fade into the background as soon as a new one starts. Not 2025: a year of epochal shifts, in which the macroeconomy was the dog that did not bark. What to expect in 2026? The shocks of 2025 will not be undone, but neither will they be repeated. Instead, their effects will work their way through the system, in ways that are unlikely to be linear and smooth. In the baseline scenario, the macroeconomy will remain a dog that does not bark, either out of alarm or joy. However, there are a few potential path changers to look out for. Chances are, then, that 2026 will not feel any smoother on a day-to-day basis than its predecessor. However, that will not mean good outcomes cannot be reached for those who keep their heads.
On 10 December, the US Federal Reserve surprised everyone by announcing that it would resume expanding its balance sheet on 12 December, just days after it had stopped reducing it. Although it came earlier and was more substantial than expected, the expansion of the Fed's balance sheet should not be viewed as a new phase of quantitative easing, or QE.
After a year marked by global economic resilience and ending on a note of optimism, 2026 looks promising and could be a year of solid economic performance. In our baseline scenario, we expect most of the supportive factors at work in 2025 to continue to play a role in 2026 (favorable economic policy, AI, low oil prices), and even to gain momentum in the case of the German stimulus plan and European rearmament efforts. Growth in the Eurozone would thus stand out as stronger (1.6% in 2026 and 2027 after 1.5% in 2025), while US growth would stabilize at a rate close to but below 2%. Fiscal policy would, strangely enough, be both a factor supporting and hindering growth
Public finances in advanced economies are facing a combination of pressures. The structural rise in interest rates is already complicating the situation, but its effects are not yet being fully felt. When they do (at the end of the decade), most countries will need to generate primary surpluses in order to stabilise their debt ratios. At the same time, governments must fund age-related spending, defence and climate change mitigation. In this climate, higher growth would help to stabilise public debt-to-GDP ratios, and vice versa.
