International economic outlook: January 2026

Forecast changes

We now estimate the global economy grew 3.1% in 2025 and revised our 2026 global GDP forecast higher to 3.0% from 2.8% previously. Our outlook for the global economy is still defined as resilient, given the numerous risks percolating across the global economy. Upward revisions to the outlook for the U.S. economy, China and India are the driving forces of our more constructive outlook on the global economy and global growth prospects.

Our outlook for monetary policy has not changed materially since our 2026 annual economic outlook. We continue to believe that monetary policy space for rate cuts across G10 economies is limited, and we expect only the Fed, Bank of England and Norges Bank to ease monetary policy this year. We see greater scope for easing in the emerging markets, and after a large minimum wage hike, we believe Colombia’s central bank can begin a tightening cycle at the upcoming January BanRep meeting.

The U.S. dollar has been mixed to start 2026; however, our views on currency markets and the U.S. dollar have not changed much. We continue to hold a bifurcated outlook on the dollar, and believe the greenback can experience more downside in early 2026 before experiencing a broad recovery starting in H2-2026. Amid an environment of broad dollar strength, we expect emerging market currencies to come under the most pressure and underperform.

Key themes

Global economic conditions were resilient in 2025, and we expect that resilience to carry over into 2026. Reduced uncertainty on trade and tariff policy should be supportive of activity, while a broad shift to accommodative fiscal and monetary policy should put a floor underneath global GDP growth. China's economy is also demonstrating tentative signs of stabilizing; however, we expect China to be the primary contributor to softer global GDP growth in 2026 relative to last year.

In the G10, central bank policy space for rate cuts remains limited, and in addition to the Fed, we expect only the Bank of England and Norges Bank to lower interest rates in 2026. Room for rate cuts is more present in the emerging markets, and we expect rates to be lowered across Asia and EMEA regions. On the other hand, clear divergences in the path for monetary policy and interest rates is apparent in Latin America as central banks respond to domestic economic and markets conditions as opposed to global trends.

Dollar depreciation has been a theme for the past 12 months, and in our view, a Fed still in easing mode and softening U.S. economic trends can contribute additional downside to the greenback. We do, however, believe the dollar can rebound starting in the second half of this year as the Fed's easing cycle ends, and when the dollar recovers, emerging market currencies may be at risk as EM FX may be at levels disconnected from underlying fundamentals.

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