Goldman Sachs expects global economic growth of 2.8% next year, anticipating a 50 basis point rate cut by the Federal Reserve

Goldman Sachs expects the global economy to grow steadily by 2.8% in 2026, higher than the market expectation of 2.5%. Among them, the U.S. economy is projected to grow by 2.6%, based on reduced tariff drag, tax cuts, and a more accommodative financial environment. Meanwhile, China's economy is expected to remain resilient, growing by 4.8% year-on-year, with strong export performance offsetting the impact of weak domestic demand. Although facing long-term challenges, the bank remains relatively optimistic about the eurozone's forecast for next year, expecting economic growth of 1.3%, mainly due to fiscal stimulus in Germany and strong growth in Spain.

However, the bank believes the labor market outlook is less optimistic, as accelerated productivity improvements have raised the GDP growth threshold required to create jobs, particularly evident in the U.S. While GDP growth is steady, the unemployment rate continues to trend upward.

Regarding inflation, the bank expects that by the end of 2026, inflation in most economies will fall back to near target levels. In the U.S. and the U.K., core inflation is expected to slow from the current level of about 3% to near 2%, as the impact of tariff pass-through and administrative prices diminishes, while wage and housing inflation also slows. Falling oil prices, increased supply of Chinese goods, and accelerated productivity growth should also help curb inflation.

On interest rates, the bank expects the U.S. Federal Reserve to cut rates by 50 basis points to 3% to 3.25%, with dovish risks present. The bank anticipates that the U.K. and many emerging markets will also cut rates, especially Brazil and Central and Eastern Europe, the Middle East, and Africa (CEEMEA), with the U.K. potentially cutting rates by 75 basis points. As for the eurozone, the bank expects to maintain interest rates unchanged and disagrees with the market's pricing shift regarding rate hikes in Canada and Australia.

In terms of assets, the bank holds a positive view on stocks and many emerging market assets, believing that the cyclical backdrop will dominate the market, overshadowing valuation concerns, although the tension between the two may increase volatility, with the market more focused on the trend of re-leveraging potentially leading to underperformance in credit.

The bank believes the key risk lies in a weak labor market potentially triggering recession concerns, or the stock market questioning the value of AI-related revenues. In these scenarios, allocating to short-term U.S. interest rate-related assets should be defensive. The bank also believes the dollar will gradually weaken, unless stronger growth in the U.S. leads the market to revise down expectations for rate cuts, although the decline may be more concentrated in currencies sensitive to the cycle