US Consumption to Slow

“We expect US consumption to slow in 2026 as labour market weakness weighs on household income, but the US fiscal deficit is widening again. We forecast US 2026 GDP [Gross Domestic Product] growth at 2.2%, revised up from 2% in our January forecast update, and unchanged from last year”, Fitch said.

Eurozone Growth to Remian Unchanged

“We project eurozone growth at 1.3%, unchanged from December, and slightly below last year. Higher energy prices are a new headwind, but underlying growth trends are improving as Germany starts to recover on fiscal easing. For the eurozone stripping out Ireland (where growth has been volatile), we expect a 0.3pp [percentage points] pick-up to 1.3%”, it pointed out.

China’s Economy to Slow

China is forecast to slow to 4.3% from 5% in 2025 as consumer spending growth is weakening and export growth is expected to cool.

However, Fitch anticipates a mild recovery in capex, after 2025 saw the first annual decline in investment since 1990, adding, “We have raised the GDP growth forecast for 2026 by 0.2pp since December.

“We raised our 2026 annual average oil price forecast to US$70 a barrel from US$63 (Brent). This assumes that the Strait of Hormuz remains effectively closed for about a month, but oil prices then fall to the mid-US$60s by 2H26 [second-half]. This revision has not had a major impact on our base-case economic forecasts”, it stressed.

But an adverse scenario – in which oil prices rise to US$100/barrel and remain there – would be a significant global supply shock, reducing world GDP by 0.4% after four quarters and adding 1.2-1.5 percentage points to inflation in Europe and the US.

The US Supreme Court’s cancellation of IEEPA tariffs has reopened uncertainty about US trade policy, but Fitch said a temporary S122 tariff at 15% would leave the overall US Effective Tariff Rate (ETR) at 11.3%, close to our December assumption.

World trade picked up in 2025 despite the jump in the US ETR. This partly reflected the high import intensity of IT investment given the geographic concentration of global semiconductor manufacturing.

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This means growth will be unchanged rather than slowing from 2023.

“Growth is proving surprisingly resilient in the face of high interest rates and geopolitical risks”, the London-based firm said in its global outlook.

The change in global growth it said reflects another upward revision for US growth in 2024 to 2.2% from 2% previously, upward revisions for several European economies that have pushed euro area growth to 1% from 0.8% and an upward revision for Brazil to 2.1% from 1.8%.

“We have reduced our expectations for future monetary policy loosening, removing one 25-basis point cut from the loosening cycles of both the Federal Reserve (the US central bank) and the European Central Bank in 2024-25. In contrast, we now expect the Bank of England (the UK central bank) to cut quicker than previously forecast, lowering its rate to 3.5% by end-2025 (compared with 4.25% previously)”.

Geopolitics will lead to reconfigurations in global economy

The EIU forecasts more fragmentation and regionalisation in the world economy in 2024-28 as alliances tighten and competing blocs form.

The return of industrial policy, including sanctions and the provision of new incentives, will push firms to adopt more inefficient supply chains, stoke trade tensions in strategic sectors and make it difficult to compete across the global marketplace.

These developments, it said, will drag on growth potential.

“We expect that global real GDP will expand by 2.8% a year on average over the next five years—below the 3% of the 2010s, which was hardly a stellar decade for the global economy.

Immediate growth outlook is fairly rosy

In the near term, however, the EIU, said global economy is showing resilience in the face of international conflict and higher interest rates.

This mainly reflects the remarkable strength of the US economy, which is driven by strong household finances, a rising trend in manufacturing investment and a booming technology sector.

Elsewhere, it said the picture is less dynamic but short of a downturn.

Momentum in Europe will build gradually in 2024. Modest government stimulus in China is helping the economy to emerge from a property-related slump.

Emerging markets will benefit from a rebound in global trade and firm commodities demand, even though they will face challenges from a strong US dollar and high debt-servicing costs.

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