International economic outlook

Summary

Forecast changes

• We have once again revised our global GDP growth forecast higher. We now forecast global growth of 2.9% this year, up from 2.8% a month ago. For 2026, we forecast a more gradual slowdown in global growth to 2.7% (previously 2.5%), while our newly minted global growth forecast of 2.9% for 2027 represents a modest acceleration in the pace of global expansion relative to 2026. Upward growth revisions to the United Sates and India, and to a lesser extent Mexico and Brazil, account for much of the improved outlook.

• With near term economic prospects still uncertain, we now forecast more Federal Reserve monetary easing than previously envisaged. After a 25 bps rate cut in September, we expect a further 100 bps of rate cuts from the Fed through the middle of next year. We expect earlier, or more, monetary easing from central banks in Canada, New Zealand and Mexico compared to a month ago. However, we expect later, or less, monetary easing from central banks in the United Kingdom and Norway.

• We believe the trend of U.S. dollar weakness can continue for longer than previously anticipated. The U.S. economic slowdown and Fed rate cuts through mid-2026 now mean we forecast the U.S. dollar to depreciate broadly against many G10 and emerging currencies though the middle of next year. The U.S. dollar should stabilize and strengthen from late next year as the U.S. economy rebounds and Fed monetary easing comes to an end.

Key themes

• The global economy continues to face an unusual dichotomy, with the longer-term outlook brightening even as the near-term outlook remains clouded. With trade and tariff disruptions likely to be less intense than previously feared, fiscal policy set to turn more growth-supportive and monetary easing helping activity, our medium-term outlook has improved. That said, as the impact of higher tariffs begin to take effect, many of the key advanced and emerging economies still face the prospect of a slowdown in activity growth in the immediate months and quarters ahead.

• We view the near-term global slowdown as the most significant driver of monetary policy. Given slower U.S. growth and only limited tariff-related inflation to date, we see a further 100 bps of Fed rate cuts still to come. The decisively dovish shift in the Fed's monetary policy outlook has been matched only in part by foreign central banks. We expect earlier or more easing from central banks in Canada, New Zealand and Mexico. However, we expect only a gradual pace of monetary easing from the United Kingdom and Norway, while for many of Europe's other central banks, we suspect rate cuts may already be at, or near, an end.

• A near-term U.S. growth slowdown, Fed easing through the middle of 2026 and some lingering questions surrounding the U.S. dollar's status, should keep the greenback on the defensive through the middle of next year. The euro, Australian dollar, Norwegian krone and Mexican peso are among the currencies we view as candidates for further medium-term outperformance. The U.S. dollar should stabilize and strengthen from later in 2026, however, as U.S. growth rebounds and Fed monetary policy easing comes to an end.

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