What's on the Horizon for the Global Economy?

Our view in a nutshell

Japan

• We expect rate hikes in September 2026, and January and April 2027. A weaker JPY could lead to four hikes.
• Near-term rate hike(s) will be driven by risks rather than the BOJ’s main scenario of the economy and prices
• The government has decided to cut the VAT rate for food from 8% to 1% for two years starting in April 2027.
• We expect capex to drive recovery though GDP-based real capex has been subdued for the last five quarters.

China

• The current status of the economy could be best described as a big divergence and domestic weakness.
• We expect Beijing to initiate a new round of supportive measures. However, in our view, the scale of such measures might be limited.
• Considering ample market liquidity and falling CGB yields, we maintain our forecast for no RRR and rate cuts until Q2 next year.
• We expect the ongoing AI boom to widen both demographic and geographic inequality, which could further dent demand.

Rest of Asia

• Sustained AI demand and a gradual normalization of the energy supply chain bode well for Asia’s economic outlook.
• We expect Taiwan, Malaysia and Singapore to outperform, and we remain cautious on Indonesia and Thailand.
• Elevated oil prices, El Niño, and rising memory prices pose upside risks to inflation.
• Most Asian central banks have turned hawkish, amid better-than-expected growth and rising inflation.
• Korea: We expect two more 25bp rate hikes as the BOK expects strong growth and demand-side inflation (terminal rate: 3.50%).
• India: With a faster rise in food and oil prices, and firming core inflation momentum, we forecast two 25bp RBI hikes in Q4.
• Singapore: Spillovers from the tech boom and strong domestic demand should boost growth and lift core inflation to above 2.0%. 
• Australia: We think a 25bp rate hike on 29 September is more likely than not, and see risk of a more pronounced macro cycle.
• New Zealand: We expect growth to recover and forecast one more 25bp hike in December, to return policy to roughly neutral.

United States

• We now expect the Fed to deliver a 25bp hike at the September meeting.
• This is likely to be followed by another hike in December.
• Little inflation progress and a sharp rise in energy prices led us to revise our call.
• Growth is likely to remain strong due robust fixed investment and steady personal consumption.
• The labor market has stabilized, and we expect the unemployment rate to decline.

Canada

• We expect the BoC to hold rates steady, with risks skewed to tightening.
• Labor markets have shown some signs of stabilization, but risks remain skewed to the downside.
• Falling rents and slowing wage growth are likely to offset elevated energy prices, keeping underlying price pressures contained.

Euro Area

• Growth was resilient in H1 2026, though headwinds from the Iran war remain for H2 2026. We see growth improving into 2027.
• We expect inflation to print above target in the quarterly profile until early 2027, due to the conflict in Iran. 
• We expect two more ECB rate hikes in December 2026, and March 2027, lifting the depo rate by to 3.00%. 
• 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 around 3.5% this year.
• GDP growth was strong at 0.6% and 0.4% q-o-q in Q1/Q2, respectively, but there are questions over ONS seasonal adjustments.
• Downside risks: weaker job market, elevated saving ratio. Upside risks: sticky services inflation, Middle East conflict.
• We expect a BoE to leave rates unchanged for the rest of 2026, and to see two rate cuts in H2 2027.

Scandinavia and Switzerland

• Switzerland: Inflation has accelerated, but core inflation remains low. We see no change in rates for the foreseeable future.
• Sweden: Inflation is low but has surprised us to the upside recently. GDP growth was strong in Q2. We expect a March 2027 hike.
• Norway: Norges Bank raised rates in May to counter sticky inflation, we expect another 25bp rise in November and a cut in 2027. 

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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