S&P Global Ratings
Economic Research
Our economists are responsible for developing the macroeconomic forecasts and risk scenarios used by S&P Global Ratings' analysts during the ratings process, as well as leading key cross-sector and cross-divisional research projects.
Global Economic Outlook Q1 2026: AI Tailwinds Boost Otherwise Weak Growth
Global growth is holding up better than expected as we enter 2026, thanks to a surge in AI-driven investment and other favorable trends. While U.S. tariffs remain a risk, their impact has been milder than anticipated, supported by a recent easing of tensions with China.
The standout story is the U.S.-led AI boom, where spending on data centers, hardware, and software is powering domestic demand and lifting tech exports worldwide. Lower oil prices and accommodative financial conditions add further momentum, even as policy unpredictability and labor market imbalances linger.
Inflation is easing globally, central banks are trimming rates, and confidence is improving across major economies. With these tailwinds, global GDP growth is projected to hover near 3.2%, with India leading at 6.5%-7% and Europe gradually strengthening. The outlook remains positive but clouded by geopolitical and policy uncertainties.
North America
Economic Outlook U.S. Q1 2026: Steady As She Goes But On A Narrow Path
We forecast real U.S. GDP growth of 2% in 2025 and 2026, modestly up from our September forecast and slightly above near-term potential growth. Real consumer spending growth will hit a cycle low over the next two years, while AI-related hard and soft infrastructure will likely continue to drive investment growth.
Low-hire, low-fire is likely to remain the modus operandi of the labor market. We predict consumer price inflation will persist near 3% in the first half of next year before gradually falling back toward 2%.
We continue to pencil in a 25-basis-point (bp) fed funds rate cut in December, followed by 50 bps of easing over the second half of 2026. However, a data-dependent Fed may choose to wait until January to cut instead, due to shut down-related delays in top-tier data.
EMEA
Economic Outlook Europe Q1 2026: Germany’s Fiscal Reawakening
Europe will see stable economic growth in 2026, although the geographical composition is shifting. Germany's growth is set for a notable rebound, while Spain’s will slow. We forecast Germany’s expansive fiscal policy will boost growth and have positive regional spillover effects, particularly in Central and Eastern Europe. By our estimates, the policy's cyclical effects at 0.5% of German GDP in 2026, increasing further in subsequent years. The impact on potential growth is less certain at this stage.
We expect digital transformation to remain a key growth driver next year. The U.S.-led global boom in AI infrastructure has already contributed 0.4% to annual growth in Europe since 2021. The potential for further disinflation appears limited, so there is little scope for additional cuts to monetary policy rates in Europe.
Asia-Pacific
Economic Outlook Asia-Pacific Q1 2026: Signs Of Relief
China's domestic demand is likely to remain subdued and exports should slow. But we have raised our 2026 China GDP growth forecast to 4.4%, from 4%, due to lower U.S. tariffs. Across the rest of Asia-Pacific, reduced tariff uncertainty, tech export strength (driven by the U.S.-led AI boom), and resilient demand have prompted us to lift our 2026 GDP forecast to 4.2% from 4.0%.
In our view, few, if any, central banks have scope to further lower policy rates as they are near neutral levels, and exchange rates have weakened.
Emerging Markets
Economic Outlook Emerging Markets Q1 2026: AI Will Drive Trade Divergence In 2026
Growth has been stronger than expected in 2025, and we expect only modestly slower growth for most EMs in 2026. AI and tech-related exports should continue to outperform in 2026, benefiting mostly EMs in Asia. The impact of higher U.S. tariffs, which so far has been modest, will be more noticeable in non-AI related EM exports in the coming quarters.
We assume financing conditions for EMs remain benign next year, as the Fed continues to cut rates and the recent weakness in the U.S. dollar is broadly sustained. However, a key downside risk is that the Fed cuts by less than we expect, amid above-target inflation.
Climate Economics
Net-Zero Transition Stutters As Geoeconomic Risks Increase
Geoeconomic security concerns are reshaping the transition to net-zero emissions. Immediate risks take precedence over long-term sustainability goals, even though global emissions keep rising.
Weaker climate policy commitments and trade tariffs will slow progress toward net zero, with less public funding available to derisk net-zero technologies and emerging markets. This reduces private sector incentives to invest in clean technologies.
Asia-Pacific (APAC)--particularly China--and the EU will continue to lead the development and adoption of clean technologies. Yet diverging industrial and trade policies will likely continue to create tensions.