On December 10, the US Federal Reserve surprised everyone by announcing that it would begin expanding its balance sheet again on December 12, just a few days after it had stopped reducing it. This expansion, which came earlier and was stronger than anticipated, should not be interpreted as a new round of quantitative easing, but rather as an admission that quantitative tightening was halted too late.
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.
Growth in the United States is expected to come close to its potential pace in 2026. This resilience would mask “K-shaped growth”, supported by AI-optimism related investment and consumption by the wealthiest. Investment in other areas of the economy is not as dynamic, while most Americans face persistent inflation and a deteriorating labour market. At the end of Q1 2026, the Fed is expected to end its cycle of monetary easing, due to an emphasis on the employment component of its dual mandate. The fiscal impulse is expected to remain slightly negative in 2026 due to tariffs, with their scope still a key issue.
Growth in the Eurozone is expected to strengthen in 2026 (1.6%) primarily driven by investment and a resurgence in activity in Germany. Our forecasts indicate that inflation is likely to remain below the 2% target. However, the anticipated recovery in GDP growth may prompt the ECB to keep its rates unchanged until 2027 before raising them. The fiscal impulse is expected to remain largely neutral, as fiscal consolidation in France and Italy offsets the increase in the German deficit. Interest rates on new loans to households and businesses are projected to remain stable in 2026, with new loans continuing to decelerate for both households and businesses. However, sovereign rates are expected to rise moderately.
The German economy is undergoing a strategic transformation, with increased public spending poised to significantly change its economic model. This transformation has the potential to boost business investment and household spending, while also reducing the country's reliance on exports. The stability of GDP in Q3 2025 underscores this duality: the rise in public spending and private investment is offsetting the ongoing decline in exports. Following a growth rate of 0.3% in 2025, Germany's economic expansion is projected to gain considerable momentum in 2026 (1.4%) and 2027 (1.5%), with this growth gradually extending to the private sector. The rise in public debt is expected to remain manageable and temporary
French growth has been rebounding since Q2 2025, driven primarily by aeronautics production, but also by business investment in a context of decreasing interest rates. These two factors are coming along with two structural drivers: growth in services and public consumption. In 2026, these momentums are expected to continue. Additionally, exports should benefit from the rebound in German growth. Inflation is expected to remain low and household consumption to strengthen moderately, against a backdrop of continued high political uncertainty. French GDP growth is expected to return to its 2024 level (1.1%) in 2026, after a soft patch in 2025 (0.8%).
The Italian economy is showing some resilience: GDP experienced a modest rebound in Q3 2025, and moderate inflation is helping to maintain household purchasing power. We forecast growth to be around 1% over the next two years (1% in 2026 and 0.9% in 2027). Market confidence has been bolstered, as evidenced by improved ratings, due to political stability, fiscal consolidation, and a growing share of public debt held abroad. Exports are benefiting from a robust pharmaceutical sector and intra-EU sales, while trade with the United States remains positive. Despite an historically strong labour market, productivity remains low due to weak intangible investment, limited digitalisation and significant fragmentation within the business sector.
Spanish growth should continue to outpace Eurozone growth. It is underpinned by a dynamic labour market, which is generating gains in purchasing power and bolstering consumption. Investment, meanwhile, is benefiting from lower interest rates and European funding. This strong GDP growth will enable the country to generate primary surpluses and continue to reduce its public debt ratio. However, Spanish activity should come up against the constraint of full employment at the end of the decade, in the absence of significant productivity gains.
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.
Les dernières activités économiques.
Fireside chat between Jean Lemierre (Chairman of the Board of Directors of BNP Paribas) & Isabelle Mateos y Lago (Group Chief Economist).
The context surrounding the December 9-10 FOMC meeting (BNP Paribas scenario: -25bp), which marks the final meeting of 2025, serves as a prelude to the challenges that the Federal Reserve will face in 2026. The outlook for the dual mandate calls for differing responses, and uncertainty prevails, fuelled by divisions among FOMC members that stand in contrast to the institution's pro-consensus stance. In the coming year, a significant test awaits US monetary policy and its autonomy, particularly with the succession of Chair Jerome Powell. However, the potential for an abrupt shift in US monetary policy should not be overstated. The Fed's decisions are expected to continue to be driven by economic fundamentals
The latest economic news.
The latest economic news
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.
Growth in emerging economies has remained solid since the beginning of the year, thanks in particular to buoyant exports and easing financial conditions. Up until the summer, the front-loading of purchases in anticipation of tariff increases in the United States stimulated trade. In addition, global trade flows have been reorganised. In 2026, fiscal and monetary policies will continue to support growth, but will be more constrained. Monetary easing will be less pronounced than in 2025, if only because of the uneven pace of disinflation across countries. Fiscal policy will be constrained by the need to curb the growth of public debt ratios
After a solid start to the year, Chinese economic growth has gradually slowed. Thanks to a rapid reorientation, exports have weathered the US tariff shock well. They are the main driver of economic activity, while domestic demand remains stubbornly fragile. The authorities have launched an “anti-involution” campaign, but adjusting demand policy in order to boost domestic investment and consumption, at a time when exports may begin to run out of steam, is also becoming urgent. Despite the deterioration in public finances in recent years, the central government and local governments still have some room for manoeuvre to act.
