Goldman Sachs released a research report projecting robust global economic growth of 2.8% in 2026, surpassing market expectations of 2.5%. The U.S. economy is expected to expand by 2.6%, supported by reduced tariff drag, tax cuts, and looser financial conditions. China's economy is anticipated to remain resilient with 4.8% year-on-year growth, as strong export performance offsets weak domestic demand.
Despite long-term challenges, the bank maintains a relatively optimistic outlook for the Eurozone, forecasting 1.3% growth driven by Germany's fiscal stimulus and Spain's robust expansion. However, labor market prospects appear less favorable, as accelerated productivity raises the GDP growth threshold for job creation—particularly evident in the U.S., where unemployment trends upward despite steady GDP growth.
On inflation, Goldman Sachs expects most economies to see inflation fall close to target levels by late 2026. In the U.S. and UK, core inflation is projected to slow from around 3% to near 2%, as tariff pass-through and administrative price effects fade, alongside moderating wage and housing inflation. Declining oil prices, increased Chinese goods supply, and productivity gains should further curb inflation.
Regarding interest rates, the bank predicts the Federal Reserve will cut rates by 50bps to 3%-3.25%, with potential dovish risks. The UK and many emerging markets—especially Brazil and the CEEMEA region (Central & Eastern Europe, Middle East, and Africa)—are also expected to ease, with the UK potentially cutting by 75bps. The Eurozone, however, is likely to hold rates steady, diverging from market pricing that anticipates hikes in Canada and Australia.
On assets, Goldman Sachs holds a positive view on equities and many emerging market assets, believing cyclical momentum will outweigh valuation concerns—though tensions between the two may heighten volatility. The bank warns that renewed leverage trends could lead to underperformance in credit markets. Key risks include fragile labor markets potentially triggering recession fears or equity markets questioning AI-related revenue valuations. In such scenarios, short-duration U.S. rate exposures may offer defensive positioning.
The report also suggests the U.S. dollar will gradually weaken unless stronger U.S. growth prompts markets to scale back rate-cut expectations, with declines likely concentrated in cyclical currencies.
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