CLEARER WHEN DECONSTRUCTED
In the US, economic growth displayed resilience in Q2, in line with our narrative that consumers are healthy, without igniting a demand-driven inflation resurgence. Our forecast remains unchanged at 2.1% average growth for 2026. The labour market is resilient, with no clear signs of moving away from the low-fire-low-hire equilibrium that has characterised this year. August CPI and PPI releases featured relatively strong headline numbers. However, upon close inspection of the contribution from different categories, we notice that there is no evidence of renewed pipeline pressure in the economy. We still attribute those growth rates to one-off factors rather than to a new upward inflation trend. In the EA, the real GDP growth in Q2 confirmed the broad-based resilience of the economy, with accelerating private consumption and net exports. Looking ahead, private consumption momentum is likely to be increasingly tied to the development of the energy crisis. Similarly, higher energy imports, the Rhine drought, and the intensifying manufacturing competition with China will probably tame the net trade momentum in H2 data. We maintain our growth forecast profile unchanged for 2026 and 2027. The headline HICP for August accelerated to 3.2% y/y. However, core inflation slightly surprised to the downside, with services slowing to 3.0% y/y. The focus remains on energy prices, with an increasing weight on natural gas. We still do not observe evidence of indirect or second-round effects in the HICP basket. We maintain our inflation forecasts unchanged. The economic growth narrative for China does not change in August. Internal demand is sluggish, and policy support is not yet effective in promoting growth. In this context, August data confirmed that exports and AI investments are the drivers of economic growth in 2026. Despite prices accelerating in August, we still do not find evidence that demand is fuelling inflation. Upside risks to inflation are connected to developments in energy prices in the Middle East. We expect the Fed to deliver a further one to two rate hikes by March 2027 (vs. an extended pause before). That said, we do not view the latest move as the beginning of a sustained tightening cycle and continue to believe that the Fed is unlikely to deliver the full three additional rate hikes currently priced by markets through July 2027. The ECB Governing Council raised rates by 25bp, taking the depo rate to 2.5%. Although inconsistent with our macro baseline, we do not rule out that the ECB may provide one more hike by December, provided 1) energy prices remain close to the adverse scenario levels projected by the ECB and 2) growth momentum stays resilient (vs no more hikes previously). We continue to believe that the ECB will not be able to deliver in full the amount of hikes markets are currently pricing (three and a half by July 2027). Concerning the PBoC, we stick to our call for no policy rate or RRR cuts in 2026, with near-term policy support more likely to come through faster fiscal policy execution. Broad-based monetary easing is more likely to come later (in 2027), if growth weakens further or fiscal support proves insufficient.