GDP growth and inflation
Interest rates, exchange rates
We invite you to follow our EcoInsights analyses on the war in Iran. The “Growth and Inflation” baseline scenarios will be fully updated in April.
United States
The US economy is expected to grow above its potential pace in 2026, with an average annual growth rate of +2.7%, a yearly improvement (+2.1% in 2025). This apparent resilience to uncertainty, tariff and energy shocks, together with above-trend productivity growth, masks K-shaped growth, supported by investment linked to AI-optimism and consumption by the wealthiest amid a wealth effect (historically high stock market valuations). The inflation overshooting of the target is set to continue (+3.1% in 2026) until at least 2028 due to tariffs – although the impact of these appears to be less significant than expected – and the rise in oil prices. The labour market is experiencing a slowdown in both demand and supply, linked to a less dynamic economy than after the post-pandemic reopening due to the administration's immigration policy. The rebalancing of risks surrounding the Fed's dual mandate and its emphasis on the ‘employment’ component has triggered a new cycle of rate cuts. The FOMC implemented three rate cuts (-75 bps cumulative) in total in 2025, and we expect the Fed Funds target range to be held steady à 3,5% - 3,75% throughout 2026.
China
Economic growth reached 5.0% in 2025, like in 2024, and is projected to decelerate very moderately in 2026. Domestic demand weakened in the last quarter of 2025, with a contraction in investment and a slowdown in retail sales growth, but then it rebounded in the first two months of 2026. The crisis in the property sector continues and confidence of households and private investors remains low. The authorities will maintain supportive fiscal and monetary policies, and the strengthening of private consumption is one of their priorities. However, the central bank and the government will continue to implement moderate policy measures to stimulate activity, even in a less supportive global environment. Export growth performance remains strong, and Chinese goods are expected to remain competitive in the short term. Deflationary pressures persist. They might decline in 2026, partly thanks to higher global oil prices and anti-involution measures implemented by the authorities.
Eurozone
After holding up well in 2025 (1.5%), growth is expected to strengthen in 2026 (+1.6%). It is expected to grow at a stable quarterly rate of 0.5% over the year. Favourable carryover effect would keep the average annual unchanged in 2027 (1.6%), despite a lower quarterly profile (+0.3% q/q). The roll-out of fiscal measures in Germany and the planned increase in military spending and AI-related investment in Europe, against a backdrop of labour market resilience, underpin this scenario. This momentum will nevertheless be undermined by the energy shock linked to developments in the Middle East, which leads us to revise our monetary policy scenario for 2026, with risks remaining skewed to the upside: the ECB would implement three successive rate hikes (June, July, September), bringing the deposit rate to 2.75%. In this context, this tightening would increase uncertainty regarding our growth outlook, without invalidating it at this stage.
France
GDP growth reached 0.2% q/q in Q4 (after 0.5% q/q in Q3), driven by private consumption (+0.3% q/q), household investment (+1.1% q/q) and the exports of aeronautics. Inflation was quite low in 2025 (1%) and should not accelerate in 2026 (1.1%). In 2026, GDP growth should increase to 1.3%, driven by demand (business investment, exports, private consumption), after a lower performance in 2025 (0.9%).
United Kingdom
Economic activity is expected to slow in 2026, with growth easing to 1% after 1.3% in 2025. The energy shock linked to the war in Iran would generate renewed inflationary pressures, and instead of gradually converging back to target, inflation is projected to reach 3.2% before declining only gradually to 2.5% in 2027. In this context, and contrary to the previously expected monetary easing, we now anticipate a tightening of 50 basis points in 2026. Growth momentum would remain weak, with quarterly expansion averaging around +0.2%. Activity would be mainly supported by public spending, particularly through increased public investment; defense investment plans in the UK and across Europe are expected to provide some support to economic activity. Conversely, persistent labor market tightness, risks of de-anchoring of inflation expectations (and thus second-round inflationary effects), as well as deterioration in corporate conditions could weigh further on the outlook.
Japan
Japanese growth is expected to slightly exceed its potential level in 2026. In 2025, the average annual growth rate stood at +1.2% and is expected to slow to +0.8% in 2026, as fiscal policy should support activity while supply constraints and inflation temper it. Underlying inflation has exceeded the +2% y/y target since 2022. As a result, solid nominal wage increases, which are expected to continue in 2026, are proving insufficient to stem the decline in real incomes and support household demand. The level of public debt is contributing to bond pressure, illustrated by record 10-year and 30-year rates over more than two decades, probably reinforced by expansionary fiscal policy and the spacing of key rate hikes. In fact, in 2024, the Bank of Japan began a cycle of ‘less accommodative’ policy and the policy rate currently stands at +0.75% (previously negative). We expect the process to extend, including one hike in Q2 2026 +25pb), until a +2.0% terminal rate is reached at the end of 2027.
Exchange rates
We expect the dollar to continue depreciating against the euro. Structural changes in fiscal policy and the expected strengthening of growth in Europe, coupled with the slowdown in the United States, underpin our forecast of a gradual and moderate rise in the EUR/GBP exchange rate by the end of 2026 (1.20 in Q4 2026). Conversely, we anticipate a slight depreciation of the yen and the GBP against the dollar (USD/JPY 160 and GBP/USD 1.3 in Q4 2026).
