We expect the US economy will avoid recession in 2026. We forecast growth to begin re-accelerating in Q4 this year, led by expansionary fiscal policy, easier monetary policy conditions and strong consumer balance-sheets, especially among high earners. Our constructive view critically relies on the working assumption that the recent slowdown in hiring reflects a paradigm shift within the US production function rather than signalling the late stage of the post-pandemic economic cycle. That said, given the “low hiring, low firing” labour market equilibrium the US economy is currently experiencing, we expect growth momentum to return to potential more slowly than it would normally have, had tariffs not been imposed. Regarding inflation, assuming growth momentum does not reach potential by Q4 next year and that the tariff shock is temporary, we continue to expect the Fed’s inflation target to be within reach by end of Q3 2026.
In the EA, our macro narrative remains intact: we continue to expect an economy that grows only modestly for now but hopefully accelerates next year, supported by the German fiscal impulse and improving external demand. However, risks remain skewed to the downside. Meanwhile, we expect disinflation in services to continue, which should result in core inflation undershooting by the end of the first half of 2026.
In China, with most of August’s data still pending, our macro-outlook remains unchanged. Trade slowed sequentially in August, mainly due to a decline in shipments to the US. However, we expect redirection of trade toward ASEAN countries to provide growing support for Chinese external trade heading into 2026. Fiscal stimulus remains in place, with targeted loan subsidies to households and service-sector businesses bolstering domestic momentum amid persistent deflationary pressures, which we expect to continue throughout 2026.
Monetary policy wise, we expect the Fed funds rate to decline slightly below neutral (2.75-3.0%) by the end of Q3 2026, with risks tilted toward an even faster adjustment.
We expect the ECB to deliver a rate cut in December, bringing the depo rate to 1.75% - the lower end of the neutral range - and then to remain on hold throughout 2026, with risks skewed towards one more rate cut throughout the forecast horizon.
Finally, after easing in Q2, the PBoC will likely pause through Q3 before resuming cuts in Q4 amid re-emerging risks to the 2025 growth target. Meanwhile, a dovish shift in the Fed could provide unexpected support to the yuan, with USDCNY expected to hover near 6.5 through 2025-2026.
FABIO FOIS
Head of Investment Research & Advisory
MATTEO GALLONE
Junior Macroeconomist
VALERIO CEOLONI
Senior EM/FX Strategist
CHIARA CREMONESI
Senior Rates Strategist
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