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.
Data releases confirmed resilient to strong growth and above-forecast inflation in most advanced economies, with France lagging behind and earning a rating outlook downgrade from Fitch as a result. Fed, ECB and BoJ remained on hold, as expected, and on track for December hikes. Oil continues to fluctuate between escalation fears and hopes for a return to the negotiating table. The tech sell-off in equity markets intensified despite strong earnings, as markets balk at large capex plans. This helped bond yields ease from recent highs.
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.
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
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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
It was true at midyear, and it remains true this fall: the global economy continues to show remarkable resilience, with tailwinds continuing to prevail in their tug-of-war with headwinds.We believe these tailwinds will persist and ultimately win, leading to an acceleration in growth in 2027, particularly in the largest advanced economies. But there are some downsides to the situation, the tug-of-war remains tough, and risks are numerous. Here is a brief overview of our recently updated economic forecasts and their key messages.
This month, we are launching Country Risk Profiles, an extension of EcoInsight dedicated to the risk profiles of a selection of countries. The first Country Risk Profile focuses on Vietnam, which continues to benefit from very strong economic growth despite external shocks.
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.
As we begin the 2026 financial year, long-term sovereign bond yields are reaching unprecedented highs not seen for decades. Why is this happening? Is it sustainable? What are the implications for the world’s various economies? These are just some of the questions addressed in this new Special Edition video, introduced by Chief Economist Isabelle Mateos y Lago.Drawing on insights from the banking sector and teams specialising in emerging and advanced economies, the economists from Economic Research will explain why the rise in bond yields is problematic.
Against the backdrop of rising bond yields in the Eurozone, Thomas Humblot, economist in the banking economics team, analyses the implications for the cost of bank financing and for borrowers, whether individuals or businesses.
Among emerging markets, Argentina and Türkiye stand out for their particularly high consumer price inflation, currently standing at around 30% year-on-year in both countries. However, the monthly increase rate has fallen sharply – from around 8% in Argentina and 4% in Türkiye on average in 2023 to around 2% for both countries during the summer of 2026. The economic policy strategies adopted by governments and monetary authorities to bring inflation under control are very different. However, their consequences are too, and they are not positive for Argentina.
