What's on the Horizon for the Global Economy?

Our view in a nutshell

Japan

• The BOJ will likely stay put at the April MPM, but the bank’s Outlook Report (CPI for FY27-28 in particular) warrants attention.
• We now expect the BOJ to hike in June 2026, December 2026 and June 2027 with the terminal rate at 1.50%.
• Prolongation, rather than intensification, of the impact of the US/Israeli attack on Iran will be more impactful for Japan.
• June will be key for fiscal policy, considering an interim report on a VAT rate cut and a possible resumption of energy subsidies.

China

• Despite the seemingly robust Q1 GDP, we believe a broad economic recovery is still far-fetched.
• We believe major activity data rebounded on holiday distortions and is likely to weaken again in coming months.
• We push out 10bp rate cut from Q2 to Q4 in view of the inflationary pressure while keeping 50bp RRR cut unchanged at Q2.
• We view the great divide of property and export sector unsustainble, but Beijing is not ready to provide a real solution yet.

Rest of Asia

• We expect the tech upcycle to sustain, non-tech exports to remain soft and see a mixed outlook for domestic demand.
• We expect growth to surprise above consensus in Korea, Malaysia, Singapore, Taiwan and India, and lower in Thailand and Philippines.
• Rising energy costs are pushing up pipeline price pressure, and suggest inflation is likely to rise from current low levels.
• Given the US-Iran conflict, we now expect most central banks in the region to stay on hold, but the bar to hike is also high.
• Korea: The twin chip-housing supercycle should drive above-trend growth and keep the BOK on hold through end-2026.
• India: Middle East tensions, if sustained, could test the Goldilocks mix of robust growth and stable inflation.
• Singapore: Spillovers from the tech boom and strong domestic demand should boost growth and lift core inflation to above 2.0%.
• Australia: The RBA has become more concerned about inflation; we anticipate another 25bp hike, most likely in May.
• New Zealand: We forecast a first rate hike in December (risk sooner) with inflation concerns dominating weaker growth.

United States

• We now expect the Fed to cut in September and December (our prior forecast was for cuts in June and September).
• A delayed confirmation for Chair nominee Warsh and near-term inflationary pressures led us to push back the timing of cuts.
• Growth has remained resilient, while inflation has continued to moderate gradually.
• We expect the OBBBA to be modestly stimulative in the near term, given frontloaded incentives and backloaded spending cuts.
• The labor market has stabilized lately, and we expect job gains to accelerate in 2026.

Canada

• We expect the BoC to hold rates through 2026.
• Labor markets have continued to soften, with risks skewed to the downside.
• Slowing domestic demand and falling rents are likely to offset increase in energy prices in coming months.

Euro Area

• We expect GDP growth to be affected by higher energy prices due to the euro area being so heavily reliant on energy imports.
• We expect inflation to print above target in H1 2026, due to the conflict in Iran. Services inflation is sticky but moderating.
• We expect two ECB rate hikes in 2028 as growth rises above potential but see risks of hikes this year due to the Iran conflict.
• We expect a meaningful fiscal loosening in Germany this year, but there are risks it is offset by fiscal tightening elsewhere.

United Kingdom

• Due to the conflict in Iran we have revised up our forecast and expect inflation rise and peak at 3.1% this year.
• GDP growth slowed to 0.1% q-o-q in both Q3 and Q4. We expect growth to accelerate in 2026.
• Downside risks: weaker job market, elevated saving ratio. Upside risks: sticky services inflation, Middle East conflict.
• Following hawkish sentiments from the Bank of England, we now expect the Bank to stay on hold for the remainder of our forecast.

Scandinavia and Switzerland

• Switzerland: Inflation is near zero, but we expect it to pick up, preventing another policy rate cut from the SNB to a negative rate.
• Sweden: Economic activity is improving but the jobless rate remains high. We think the Riksbank’s cutting cycle is over.
• Norway: Norges Bank cut its policy rate twice in 2025. We do not expect a rate change in our forecast but risks are towards a hike.

CEEMEA

• Türkiye: Under the new economic program, inflation continues to decrease despite some delays in meeting interim targets.
• Türkiye: Due to resilient growth and upside risks to inflation, the CBRT maintains its hawkish stance to anchor expectations.

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