UNITED STATES
The US economy is expected to grow above its potential in 2026, with an average annual growth rate of 2.2%, close to the 2025 rate (2.1%). This apparent resilience to energy, uncertainty and tariff and energy shocks, together with above-trend productivity growth, masks K-shaped growth, driven by investment linked to AI-optimism and consumption by the wealthiest amid a wealth effect (historically high stock market valuations). Inflation overshooting is set to continue (3.3% in 2026) at least through 2028, largely because of the rise in oil prices and tariffs – although the impact of these appears to be less significant than expected. The labour market is showing clear signs of improvement that should bring the unemployment rate down toward 4.0%. Given this shift in price and employment risks amid dynamic growth, we expect the FOMC to start a cycle of three rate hikes (+25pb each) before the end of 2026, bringing the Fed Funds target range at 4,25% - 4,50% in Q1 2027.
CHINA
Economic growth slowed to 4.3% y/y in Q2 2026 vs. 5.0% in Q1. It is projected to reach 4.6% in 2026 as a whole, down from 5% in 2025. Growth remains characterized by a K-shaped trajectory, and the gap between the strong performance of exports and the fragility of sectors that rely on domestic demand has even widened this year. Domestic demand rebounded in the first two months of 2026 but has weakened significantly since March. The crisis in the property sector continues and household confidence remains low. Fiscal policy measures aimed at supporting economic growth are expected to increase in the second half of the year. CPI inflation rebounded slightly in H1 2026, mostly due to the rise in global energy prices, as well as due to the increase in electronic good prices and anti-involution measures implemented by the authorities. Deflationary pressures persist, however, given weakness in domestic demand.
EUROZONE
Eurozone growth would slow to 0.9% in 2026 due to a weak Q1 (mainly due to the volatility of Ireland’s GDP data), but quarterly activity is expected to be solid in the following quarters (+0.4% q/q in Q3 and Q4 2026), despite the Middle East conflict. Growth would then pick up at 1.6% in 2027. We expect the euro area to withstand the energy shock, supported by investment in defence, AI, and electrification, which should continue to boost intra-EU trade. Inflation would rebound to 2.7% in 2026 (compared to 2.1% in 2025) on the back of the energy shock and would plateau at 2.6% in 2027. As inflation rebounds, our baseline is for one further 25-basis-point hikes in the ECB’s policy rate in Q3 2026 – pushing the deposit facility rate to 2.5% – but risks are clearly skewed towards one more hike.
FRANCE
GDP growth remained low in Q2 (0% after -0.2% in Q1) as a result of deteriorated agricultural and construction output, as well as higher inflation (2.2% in 2026 according to our forecast, after 1% in 2025). In 2026, GDP growth should reach 0.5% (after 0.9% in 2025), driven mainly by exports.
UNITED KINGDOM
UK GDP growth is expected to ease slightly to 1.2% in 2026 from 1.3% in 2025. Activity proved more resilient than expected in H1, expanding by 0.6% q/q in Q1 and 0.4% in Q2, leaving a statistical carry-over of around 1.1% y/y if output remains at its June level. Services remained the main growth driver, while Q2 also benefited from temporary factors, including favorable weather and the World Cup. The outlook appears much weaker for H2, with quarterly growth expected to remain subdued as higher energy prices, weaker purchasing power, tighter monetary policy and political tradeoffs should weigh on activity. Renewed energy-related inflationary pressures are expected to push inflation to 3.2% on average in 2026, reaching 3.8% in Q4 and peaking at around 4% in Q1 2027. Inflation should remain above target at 3.2% in 2027, prompting a 25bp BoE rate hike in H2 2026. Ten-year gilt yields should remain elevated in 2026 before falling to around 4.30% in 2027, supported by lower net supply, easing political risk premia and markets gradually pricing BoE rate cuts.
JAPAN
We expect annual GDP growth to stand at 0.9% in 2026, down from 1.2% in 2025. Higher inflation and production costs associated with the energy shock are expected to weigh on the economy’s overall performance. On the other hand, the latter is supported by fiscal policy and AI-related investment. Inflation has generally overshot the 2% y/y target since 2022. Accordingly, the Bank of Japan initiated a cautious process of “adjustment in the degree of monetary accommodation” in 2024, lifting the policy rate to 1.0% so far (previously negative) – the highest since 1995. We expect three hikes by the end of Q1 2027, followed by a return to a more cautious pace until the terminal rate of +2.5% is reached in H2 2028.. Japan is facing long-term rates pressure, illustrated by historically high 10- and 30-year yields, probably fueled by the level of public debt and the pace of monetary adjustment.
EXCHANGE RATES
In our base-case scenario (gradual normalisation of the Middle East situation with persistent price tensions), we expect the USD depreciation against the EUR to resume, albeit very gradually, amid broader diversification away from the dollar. We forecast EUR/USD to reach 1.16 by Q4 2026 and 1.20 by Q4 2027. We anticipate a depreciation of the yen and the GBP against the dollar in 2026 (USD/JPY 165 and GBP/USD 1.32 by Q4 2026) and 2027.
