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News and events

01.23.2026

OLD NEWS, GOOD NEWS

We upgraded our US growth outlook for this year but left our inflation baseline unchanged. Incoming data suggests that domestic demand ended 2025 on a stronger footing than we had expected, while inflation remains on a downward trend. On the one hand, fiscal policy, lower rates and solid market performance should support consumer spending. On the other hand, low energy prices, delayed/cancelled tariffs and favourable base effects on insurance costs will likely weigh on prices. Against this backdrop we now expect growth at 2.7% in 2026 (consensus: 2.1%), while we continue to forecast core PCE inflation to hit 2.0% Q4/Q4 (consensus: 2.5%). Risks, however, are pro-cyclical in both areas. A tariff ruling and/or potential electoral moves by the Trump administration could put further upside pressure on both economic activity and inflation.
We stick to the view that EA growth momentum will accelerate next year as we continue to expect Germany to take the growth lead amid fiscal expansion. Incoming data provide mixed evidence that our constructive baseline is on track. On the bright side, the latest IP data in Germany came in stronger than expected. On the dark side, German retail sales and our live fiscal indicator point to weak domestic demand and a slowing spending momentum, respectively. Against this backdrop, we think the balance of risks remains tilted to the downside amid poor growth quality across the region and fiscal implementation risks in Germany.On inflation, we believe the broader core downward trend is likely to remain in place as the annual reset mechanism comes into play and wage growth continues to ease.
In China, real GDP growth moderated to 4.5% y/y in Q4, mostly in line with our expectations, as domestic demand (especially investment and consumption) has weakened despite still-resilient exports. Heading into 2026, we continue to expect GDP to stabilise at 5.0% for the year, as export activity continues to play a leading role. We expect CPI inflation to increase only gradually, from 0% in 2025 to 0.8% in 2026.
We expect the Fed to pause in January. Beyond January, we stick to our view that the Fed will cut rates in March, June and September, taking the Fed funds rate to 2.75-3.00%. We, therefore, remain more dovish than markets, which expect around two rate cuts by year-end, starting in June. However, we flag downside risks to our call amid potential cycle and policy-led overheating pressures, consistent with the risk assessment incorporated into our macro baseline
While we continue to believe that the EA economy requires further support, the ECB increasingly holistic reaction function points to very low probability of a rate cut in the near-term. Against this backdrop, we fine-tune our call: we still expect a rate cut this year, but timing of the move is particularly uncertain amid the continued build up of balanced risks incorporated into our baseline (vs March previously, with risks of postponing it to June).
At the Q4 Monetary Policy Committee (MPC) meeting, the PBOC struck a measured easing stance, signaling a preference for calibrated easing. We maintain our current forecasts of around 40bps of rate cuts (OMO 7day reverse repo-rate) and possibly one 50bp RRR reduction to support 2026 growth on a firm foundation.

FABIO FOIS
Head of Investment Research & Advisory

MATTEO GALLONE
Junior Macroeconomist

CHIARA CREMONESI
Senior Rates Strategist


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