Fitch Ratings has published its latest Global Economic Outlook, indicating that global economic growth is maintaining stability despite the shock from energy prices. The agency has adjusted its prediction for global GDP growth in 2026, increasing it by 0.2 percentage points to 2.6%, which is only slightly less than the expected growth for 2025 and remains close to the long-term average.
In the United States, forecasts for 2026 and 2027 have also been lifted by 0.2 percentage points to 2.1%. This increase is attributed to resilient consumer spending, which continues to thrive despite a downturn in real household income, along with ongoing investments in artificial intelligence. The Eurozone has demonstrated similar strength, leading to adjusted forecasts for the region, with Germany’s GDP projected to grow by 1% year-on-year in the second quarter of 2026 after a prolonged period of stagnation over the past three years.
South Korea has experienced a significant upward revision in forecasts, driven by a surge in global IT expenditure, which is also benefiting other economies such as Mexico and Japan. India, too, is witnessing robust economic growth. Conversely, China’s outlook has been reduced by 0.1 percentage points to 4.5%, as declining fixed-asset investments and weak consumer spending are hindering domestic demand, despite strong performance in exports. In Brazil, economic activity is slowing, largely due to the impact of elevated real interest rates on credit growth and consumer spending.
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The global monetary policy landscape has undergone substantial changes. Under the leadership of new Federal Reserve Chair Kevin Warsh, a more hawkish stance has emerged, while the Bank of Japan has accelerated its tightening measures. The European Central Bank has also moved interest rates into a mildly restrictive range to address potential second-round effects from the volatility in global energy prices, which may persist longer than anticipated.
Brian Coulton, Chief Economist at Fitch, commented, “We have observed a notable shift in the predictions for real policy interest rates over the coming years as a more hawkish Fed Chair assumes leadership, with central banks aiming to avoid the second-round effects from input cost shocks experienced after the pandemic.”
Fitch projects that the Federal Reserve will implement another rate hike in December, maintaining rates at 4.25% throughout the following year. This forecast suggests that rates by the end of 2027 could be 125 basis points higher than previously anticipated in June’s Global Economic Outlook, despite a slight downward adjustment to the US inflation forecast due to decelerating wage growth. Additionally, the ECB is expected to raise rates once more in October; however, with a minimal risk of second-round effects, it is predicted that this year’s rate increases could be reversed next year as oil prices are expected to decline to $70 per barrel under the base case scenario.
The expectation of increased real policy interest rates in the near future has been a significant factor driving the rise in global bond yields. Supply and demand dynamics may also contribute to this trend. The increase in real yields has been observed across different maturities, with some indicators of term premia also rising. Sovereign entities with weaker public finances have generally lagged behind the broader market, while escalating yields have coincided with heightened activity in US corporate financing. This development is occurring alongside a diminishing presence of central banks in the bond markets, which is likely to exert downward pressure on the US housing sector.
The AI sector is playing a pivotal role in bolstering growth in the United States. However, with certain equity valuation metrics appearing inflated, there are concerns regarding a potential market correction and a slowdown in AI capital expenditures. Additionally, rising GDP deflator inflation, driven by increasing unit profit growth and surging prices for IT goods, indicates a risk of persistent inflationary pressures in the US, which could lead to a more aggressive approach from the Federal Reserve, especially if geopolitical events keep oil prices elevated. At the same time, China’s growing export competitiveness poses challenges for growth in Europe.
