Advanced economies proved resilient in 2025 despite a tariff shock that disrupted global trade. By early 2026, they were on track for faster growth and lower inflation. A fresh shock linked to the war in the Middle East, however, is reigniting inflation while slowing growth. This mix primarily reflects the impact of a likely decline in purchasing power on consumer spending.
However, many of the factors that underpinned 2025 growth — AI development, higher defense spending (especially in Europe), and continued trade growth — are set to persist in 2026. They would be reinforced by an acceleration of electrification, against a backdrop of rising oil prices and an AI-driven rise in electricity demand.
These growth-supporting factors should limit the drag on growth to -0.4pp (on average), while the shock would add about 1.1pp to inflation.
Meanwhile, major advanced economies’ fiscal leeway has narrowed as public debts and interest rates have risen. Fiscal support for households would therefore be significantly less important than in 2022. At the same time, central banks will likely have to raise rates to prevent inflationary pressures from becoming entrenched. The ECB and the BoE are expected to follow suit. The BoJ is expected to continue the ongoing, very gradual monetary adjustment. The greatest uncertainty surrounds the Fed, but we still anticipate that it will remain on hold throughout the year.
Read also our economists’ analyses in EcoPerspectives
2026-2027 Economic Outlook (as of 27 May 2026)
United States: Growth and full employment tested by uncertainty
Eurozone: Recovery fragile but not in doubt
Germany: A modest recovery, but one that is expected to take hold
France: Growth and public finance to stay on track despite the inflation shock
Italy: Navigating energy vulnerability, resilient trade and limited fiscal capacity
Spain: Domestic demand is expected to continue to drive growth
United Kingdom: Risk of stagflation
Japan: Strong momentum, already under threat
Oil prices: a significant rise, but one that should be put into perspective
Will the shock have the same impact as it did in 2022?
The impact of the shock will be different from 2022
An impact on inflation limited for now
A low impact for the time being on energy producer prices and a boost for electrification
