1. United States – Still Setting the Global Tone
The US economy remains resilient. Growth has slowed from post-pandemic highs but continues to outperform other developed economies running at circa 4% annual growth.
Inflation has fallen significantly from its peak, though services inflation remains sticky. The Federal Reserve appears to have completed its tightening cycle, and is in a slow easing cycle. Markets are now focused on the timing and pace of further rate cuts.
Bond yields have drifted lower as inflation data improved, supporting equity valuations. Equity performance remains concentrated in large-cap technology and AI-linked companies, with broader market participation gradually improving. AI bubble fears remain.
The base case being priced by markets: a soft landing.
2. The US Dollar
The US dollar is supported by higher relative interest rates and US economic outperformance. However, as rate cut expectations build, and investors take fright at the Trump geo-political and financial instability, the dollar has weakened – down 10% on the year. Trump does not seem concerned about this as as a weaker dollar helps US exports.
A weaker dollar would ease global financial conditions and support emerging markets. A renewed inflation surprise or geopolitical stress would likely strengthen it again.
3. United Kingdom
The UK economy is fragile but stabilising. Growth is weak, household finances remain under pressure, and investment is cautious.
Inflation has declined meaningfully but remains above target for now although forecast to reach its 2% target in April. The Bank of England is easing policy gradually, though policymakers remain wary of sticky wage pressures.
Sterling has been relatively stable, influenced both by domestic rate expectations and broader US dollar movements.
4. Europe
The Eurozone continues to lag the US. Germany’s industrial weakness and structural competitiveness challenges are weighing on growth.
The European Central Bank has shifted towards cautious easing as inflation moderates and growth stagnates. However, European equity markets have performed well this year out-performing the US .
Key Risks to Watch
- Inflation re-acceleration
- Geopolitical escalation
- Financial stress (commercial real estate, private credit)
- Political uncertainty in the US and Europe
Bottom Line
The global economy is in a late-cycle slowdown — not recession, but not robust expansion either. Inflation is easing, central banks are pivoting, and markets are pricing a soft landing.
Valuations, particularly in parts of US equities, leave little room for disappointment. 2026 is shaping up to be a year of policy calibration rather than crisis — but the margin for error remains thin.
