The global economy is forecast to generate 'sturdy' growth in 2026, with the GDP projected to surge 2.8% next year (versus the consensus forecast of 2.5%), according to global investment banking major Goldman Sachs.
US economic growth is expected to accelerate to 2.6%, while China’s GDP expands 4.8% as strong exports outweigh sluggish domestic demand, said Goldman Sachs Research in its report titled 'Macro Outlook 2026: Sturdy Growth, Stagnant Jobs, Stable Prices.'
Despite longer-term challenges, its economists predict the euro area economy will increase 1.3%, owing to fiscal stimulus in Germany and strong growth in Spain.
"As has typically been the case since the pandemic, we are most optimistic (relative to consensus) in the US," stated Jan Hatzius, chief economist and head of Goldman Sachs Research, in the team’s report.
Stronger US momentum, resilient China exports
The US is expected to substantially outperform consensus economist forecasts because of tax cuts, easier financial conditions, and a reduced drag on the economy from tariffs. As a result of tax cuts, for example, consumers will receive around an extra $100 billion (0.4% of annual disposable income) in tax refunds in the first half of next year, he said.
The narrative for China’s economy is much more mixed, noted Hatzius, adding GDP is forecast to expand 4.8% as strong exports outweigh sluggish domestic demand.
China’s ability to produce increasingly higher quality goods at lower prices remains unmatched, he added.
The world’s second-largest economy has demonstrated that it has the capability to deter high tariffs on its exports, as seen in the trade negotiations with the US, said Hatzius in the report.
"All this suggests that the Chinese manufacturing sector should continue to grow robustly," he added.
At the same time, large parts of China’s domestic economy remain weak. Although the largest drag from the property downturn on GDP growth has probably already taken place (property sales are down 60% and property starts are down 80% from the peak), Goldman Sachs Research team economists estimate that the sector will produce a 1.5 percentage point drag on GDP growth next year.
Stephan Feldgoise, the global head of M&A in Goldman Sachs Global Banking & Markets, said: "I wasn’t certain I would ever again experience M&A activity levels to rival those of 2021 - but the markets in the second half of 2025 proved me wrong, and the foundational drivers heading into 2026 remain just as robust and encouraging."
Inflation forecast to moderate in 2026
Core inflation in developed markets is expected to fall to levels that are broadly consistent with policy targets in 2026, said the global investment banking expert in its 2026 outlook.
In the US, the main reason why core Personal Consumption Expenditures (PCE) inflation has remained elevated in 2025 is because of tariff pass-through, it stated.
Excluding tariffs, the Goldman Sachs economists estimate that inflation has continued to fall and now stands at 2.3%. And although tariff pass-through will likely rise modestly further (assuming tariffs stay around their current levels), the impact on year-on-year inflation will diminish sharply in the second half of 2026 because of favorable so-called base effects.
An important factor weighing on inflation in the US and UK is the notable recent slowdown in wage growth in both economies, it stated.
In the US, nominal wages are now growing below the 4% “sustainable” rate that its team estimates is consistent with 2% inflation. In the UK, the most recent pace of wage growth is close to our economists’ estimate of the sustainable rate of 3%.
Outlook for central bank rate cuts in 2026
As with inflation, Goldman Sachs Research expects developed-market policy rates to converge lower in 2026. Three of the countries with higher policy rates - the US, UK and Norway -are forecast to make further cuts.
The US Federal Reserve is projected to reduce its policy rate by 50 basis points to 3-3.25% next year. Goldman Sachs Research’s view is that the US inflation issue has been resolved, and there’s potential for the Fed to cut rates more than expected.
"Our economists’ baseline forecast for the UK is a sequence of quarterly rate cuts to 3% by the third quarter of 2026. Meanwhile Norway’s central bank is expected to cut rates by 50 basis points to 3.5% in 2026. The European Central Bank, by contrast, is expected to hold policy rates steady as inflation falls," it added.
Goldman Sachs said increased competition from China reinforces the structural weaknesses of the euro area economy, including demographic decline, overregulation, and high energy costs.
Despite these challenges, the euro area should grow at a “decent” 1.3% pace in 2026, said Hatzius in the report.
The GDP growth in Germany is expected to benefit from the sharp increase in federal government spending that is underway.
"And our economists expect growth in Southern Europe to remain solid, especially in Spain where real consumer spending has continued to grow at around 3% and the economy’s diversification into higher value-added services continues apace," he added.-TradeArabia News Service
