Global Economic Outlook: October 2026

Key issues to highlight in S&P Global Market Intelligence's October forecast update include:

• Resilient economic momentum lifts the 2026 global growth forecast, but mounting headwinds weigh on 2027. 
• Broadening commodity price pressures drive upward revisions to inflation forecasts for 2026 and 2027. 
• Further interest rate increases are expected from the Fed, ECB and Bank of Japan before year-end.
• Rising sovereign yields and spreads tightening financial conditions, with persistent fiscal pressures adding to growth risks.  

What do PMI data signal about global economic growth and trade?

Recent growth indications have been more positive, including from S&P Global’s Purchasing Managers’ Index™ (PMI®) data. The global PMI composite output index improved for the sixth straight month in September. A bellwether for global real GDP growth, the index matched its highest level since 2021.

The areas of the global PMI data showing marked improvements in recent months include new export orders, consistent with strength in trade flows. The year-over-year growth rate in world trade volumes exceeded 7% during the third quarter to date, also matching the strongest rate since 2021. 

Among September’s national PMI releases, the strength of the US composite output index was a standout. Our tracking estimate for US real GDP growth continues to point to robust annualized growth of close to 4% during the third quarter.

The growth signals for the other major economies from the September PMI data were rather mixed, although the recent trends have generally been upward. The flash PMI figures for this month will be released on Oct. 23. 

Why are we raising our 2026 growth forecast but lowering our 2027 outlook?

Key revisions in our October update include higher 2026 growth estimates for some major economies, but widespread downward revisions to the 2027 projections.

The economies with the largest positive revisions to the 2026 real GDP growth projections include the US, South Korea, and Australia, and they generally reflect stronger recent momentum.

Our global growth forecast was raised accordingly to 2.6%. While still below February’s preconflict estimate of 2.9%, the gap has narrowed in recent months as the global economy has proved more resilient to the ongoing energy shock and persistent high uncertainty than we had expected. 

That said, our real GDP growth forecasts for major economies in 2027 have largely been reduced. While the recent data flow has been encouraging, growth headwinds are building, including broadening commodity price pressures, higher expected inflation rates and, consistent with those, less favorable financial conditions. 

How are energy and food prices adding to global inflation pressures?

Commodity-driven inflationary pressures are broadening out. The rebound in crude oil prices since midyear is one key source of near-term upward pressure. The spot Brent price has been above US$100/barrel almost continuously since early September, with the effects of ongoing supply disruptions in the Gulf compounded by concerns about inventory depletion in key markets, including the US.

The near-term assumptions for Brent crude prices were raised in our October update. The current base case from S&P Global Energy incorporates an average price of a little over US$100/b in the final quarter of 2026, up from just under US$90/b in our prior forecast round in mid-September. 

US diesel prices remain near record highs despite the US administration’s recent initiatives. European gas prices continue to trend upward, although they remain well below the extreme peaks in 2022.

The upward pressures on inflation are not confined to energy. Climate- and conflict-related factors, including a potentially exceptional El Niño, droughts in Europe and disruptions to fertilizer inputs, also threaten to drive up headline rates.

As food prices typically account for the largest weight in consumer price indexes, particularly in emerging economies, this could be a major concern. We are already seeing some of the effects on inflation and monetary policy in India, for example. 

What do rising business input costs mean for the 2026-2027 inflation outlook?

S&P Global’s recent PMI data have also signaled a pickup in pipeline price pressures. Following widespread moderation during the third quarter — a lagged effect of prior falls in crude oil prices — the September PMI data showed rebounds in input price subindexes across most economies and sectors. Still, they generally remained some distance below the 2022 peaks. 

In line with the various developments highlighted above, our consumer price inflation forecasts for 2026 and 2027 have been raised in most major economies in October’s update. 

Which major central banks are expected to raise interest rates this year?

Another round of policy rate increases by the major central banks is very likely before year-end. We predict 25-basis-point rate rises from the European Central Bank at its next meeting on Oct. 29 (raising the deposit rate to 2.75%), from the US Federal Reserve (to a target range of 4.00%-4.25%), and from the Bank of Japan (to 1.75%) in December. 

Our predictions for the US and Japan broadly match futures markets’ expectations at the time of writing, whereas we see the ECB responding to the pickup in price pressures somewhat earlier than markets expect. The recent US inflation data for September has also raised the risk of a Fed rate rise this month. 

How far the policy rate will increase remains uncertain. Two key factors have been leaning toward limited tightening in the US and Europe — our current base case: the modest pass-through of higher energy prices into core inflation (so far), and the tightening of financial conditions through other channels (soaring sovereign yields and widening spreads), which reduces the need for an extended cycle of policy rate rises.

The first factor is becoming less compelling than the second due to the broadening of commodity price pressures. The lags in the pass-through to core inflation are also a complicating factor. How those pass-through effects develop in the period ahead will be a key influence on the evolution of our forecasts for inflation, monetary policy and growth. 

How are rising sovereign bond yields affecting financial conditions and growth?

Higher sovereign yields and spreads are tightening global financial conditions, increasing the likelihood of weaker future growth. Longer-term sovereign yields reached multi-decade highs in many major markets in early October. Breaking down the drivers of the 100-basis-point-plus rise in 10-year US Treasury yields year-to-date, higher real yields are the primary factor, not inflation.

The rise in real yields, in turn, reflects higher expected US short-term interest rates and a rising term premium. That the former is partly due to higher US growth expectations is a comfort of sorts for the Treasury market, less so for Europe. 

While moderating energy prices and easing inflation concerns are expected to reduce pressure on sovereign markets in 2027, concerns over the poor outlook for public finances in many major economies are likely to persist. This includes France, where yield spreads have ballooned in recent weeks and pivotal elections in spring 2027 loom large. 

Escalating stress in sovereign markets is one of the various sources of risk to what has been a period of remarkable economic resilience in the wake of various shocks in recent years. Even if a crisis does not ensue — our base case — persistent large budget deficits and high debt burdens can still have significant economic consequences.