International economic outlook: February 2026

Summary

Global growth steady, policy divergence widening. Global growth holds near ~3%, with U.S. strength offsetting China/India slowdowns. A firmer U.S. outlook leaves less room for Fed cuts than most other DM central banks, while on balance, room for rate cuts still exists in EMs.

Idiosyncratic risks rising beneath stable aggregates. Japan’s fiscal trajectory, China hard‑landing risks, LatAm elections and USMCA renegotiation add tail risks alongside a clouded policy outlook.

China: Near-term upside, long-term risks. Exports remain resilient and property sector policy easing suggests a potential bottom in the local real estate sector, but rising leverage and export‑driven price cuts risk prolonged deflation and renewed hard‑landing fears.

Eurozone: Disinflation firming, cuts skew asymmetric. Weak manufacturing, EUR strength, China goods diversion and tightening credit raise the risk of ECB undershooting its 2026 inflation forecast, biasing policy toward easing.

Canada & Japan: Policy constrained by weak inflation vs. fiscal risks. Canada’s disinflation points to renewed BoC cuts and CAD downside, while Japan’s fiscal slippage raises long‑term risks even as weak data keep the BoJ sidelined.

Brazil & Mexico: Regime dependence. Brazil’s election‑linked fiscal risks limit BCB easing despite market pricing, while Mexico’s outlook hinges on USMCA—supportive if renewed, destabilizing if not.

Key themes

Global growth to hold near 3% this year despite elevated policy uncertainty. While growth should run slightly below its long‑run average, expansionary fiscal policy in parts of the advanced world, lagged effects of past monetary easing and the AI/commodity boom provide important offsets to a still clouded policy outlook. The U.S. remains the engine of global growth and is likely to contribute more in 2026 than 2025, offsetting growth slowdowns in China and India. Diverging growth prospects between the U.S. and the rest of the world also underpins inflation divergence: Price pressures remain firmer in the U.S. relative to other G10 economies, while EM inflation trends are mixed. While our U.S. economists forecast two Fed rate cuts this year, a strong U.S. growth outlook leaves less room for Fed cuts relative to other DM central banks (ex‑Japan and Australia), where easing risks remain asymmetric. EM central banks are still responding to local trends and have space for further easing. Even with stable global growth, idiosyncratic risks that could dampen global growth are rising—from Japan’s fiscal trajectory and China hard‑landing risks to elections in Brazil and Colombia as well as USMCA negotiations for Canada and Mexico.

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