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 the uncertainty, 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 (3.5% in 2026) at least through 2028, largely because of the rise in oil prices and tariffs – although the impact of these latter 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, the FOMC proceeded with a first rate hike at September’s meeting and we expect two further 25bp increases in December 2026 and January 2027, bringing the Fed Funds target range at 4.25% - 4.50%.
CHINA
Economic growth rebounded to 4.5% y/y in Q3 2026 (1.2% q/q) after 4.3% y/y in Q2 and 5.0% in Q1. It is projected to reach 4.6% in 2026 as a whole, down from 5% in 2025. Growth remains characterised 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 widened this year. Retail sales barely increased in the first nine months of 2026, the crisis in the property sector has continued and household confidence remains low. Fiscal policy measures aimed at supporting investment and private consumption will increase over the last months of the year. CPI inflation has rebounded slightly since last March, 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
The economy has shown resilience in the face of the energy shock: GDP grew by 0.4% q/q in Q3, and the 1.0% growth carry-over for 2026 supports our forecast of 1.1% for the year as a whole (compared to 1.3% in 2025) with the risk tilted to the upside. Growth is expected to strengthen to 1.6% in 2027, bolstered by increased spending on defence and infrastructure, as well as the global investment cycle in AI. Annual average inflation is thus expected to reach 3.1% in 2026 (from 2.1% in 2025), and 3.2% in 2027. Given persistent inflation and resilient growth, we anticipate another 25bp hike from the ECB in December 2026, bringing the deposit rate to 2.75%, followed by an extended pause. That said, stronger than expected second-round effects could lead to more tightening than our current baseline.
FRANCE
GDP contracted by 0.1% q/q in Q3 2026 (following stagnation in Q2), weighed down by a decline in aeronautics production (delay in the delivery of inputs) but supported by service sector output and purchases of electric vehicles. Overall, growth is expected to slow to 0.3% in 2026 (after 0.9% in 2025) before rebounding to 0.8% in 2027. In parallel, inflation should reach 2.5% in 2026 (compared with 0.9% in 2025), before edging down slightly in 2027 (2.4%).
UNITED KINGDOM
UK GDP growth would improve slightly to 1.3% in 2026 and remain at this level in 2027 (1.2% in 2025). The economy has so far weathered both the energy price shock and domestic political volatility. That said, growth is expected to decelerate in the second half of the year, while inflation is set to remain stubbornly above target (averaging 3.2% in 2026 and 3.5% in 2027), driven by higher energy prices and mounting second-round effects. In response, the BoE has finally raised its Bank Rate to 4.00%; If a second-rate hike looks likely for February, our baseline scenario projects that easing will resume in the second half of 2027, with two cuts taking the Bank Rate down to 3.50% by year-end.
JAPAN
Following 1.2% in 2025, Japan's GDP growth is expected to decelerate to 1.0% in 2026, before rebounding to 1.2% in 2027. 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 1.25% so far (previously negative) – the highest since 1995. We expect two more 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
We expect Fed hikes to temporarily offset structural headwinds and support the dollar. EUR/USD would target 1.14 by end-2026, before the dollar's structural downtrend resumes toward 1.20 by end-2027, although political and fiscal risk may weigh on the euro next year. The USD/JPY appreciation would continue but at a more moderate pace, with the BoJ still behind the curve despite its hikes. By contrast, GBP/USD would see relative support underpinned by a modest fiscal risk premium under the new Labour government, and resilient growth.
