Goldman Sachs Exchanges: Outlook 2026 | Episode 1: The Big Picture

Goldman Sachs 2026 Economic and Market Outlook

Global Growth Forecast

• The firm projects global growth for 2026 at 2.7%, a figure exceeding consensus expectations.
• Headwinds from 2025 tariffs are now in the "rearview mirror," expected to stabilize or decline, removing a drag on growth.
• U.S. Growth Drivers:
  • Forecast U.S. growth for 2026 is 2.5%, driven by the "One Big Beautiful Bill Act" and German fiscal easing.
  • Business support includes full equipment depreciation deductions; consumer support includes strong tax refunds.
  • The Federal Reserve is expected to deliver additional monetary easing and rate cuts in 2026.
• China Growth Drivers:
  • Exports are offsetting domestic weakness, with the export-oriented sector remaining resilient against 2025 tariff escalations.
  • The U.S. and global growth forecast implies room for markets to upgrade their optimism relative to current pricing.
  • The Chinese current account surplus is projected to reach approximately 1% of global GDP, the largest in recorded history.
• European Outlook:
  • The Euro Area is forecast to grow 1.3% in 2026, partially offsetting the drag from China's rising trade surplus.
  • Germany's fiscal expansion, particularly defense orders and infrastructure spending, is expected to provide near-term support.
  • Spain is identified as a bright spot, while the broader industrial long-term outlook remains challenging.

Labor Markets and Productivity

• The U.S. unemployment rate is expected to remain stable at approximately 4.5% despite solid growth.
• Productivity growth has risen to at least 2% annually, up from 1.5% in the 2008–2020 cycle, creating a wedge between GDP growth and employment gains.
• AI investment in 2025 had no measurable impact on U.S. GDP growth because the spending primarily consisted of imported goods and semiconductor data center inputs classified as intermediate goods.
• Significant AI-related labor market impacts are not expected until later years as firms integrate AI into daily operations.
• Weakness in immigration is constraining labor force growth, contributing to softer employment numbers.
• Consumers and workers remain pessimistic about the economy due to the disconnect between GDP performance and job market opportunities.

Inflation and Monetary Policy

• Inflation trends in developed markets are expected to continue decelerating, with the U.S. and UK nearing central bank targets by year-end.
• Rate Cut Expectations:
  • The Fed is expected to implement rate cuts, potentially reaching 3% by the end of 2026.
  • The Bank of England is forecast to implement three additional cuts over the next three quarters.
  • The Bank of Japan is expected to raise policy rates by roughly 50 basis points over the next 12 months.
• Inflation fundamentals are shifting due to loosening labor market pressures and moderating wage growth.

Asset Class Outlook

• Equities: The consensus view is for low double-digit returns in U.S. equities, supported by favorable earnings and macro conditions, though higher volatility is expected.
• Valuation Risks: U.S. market valuations are high, and the AI narrative is heavily priced in, potentially limiting upside scope relative to previous years.
• Credit Markets:
  • The risk-reward profile for credit is lower than for equities due to tight spreads and strong but aging corporate balance sheets.
  • A concern exists that AI and data center booms are increasingly financed by debt, potentially mirroring late-1990s dynamics.
• Currency Markets:
  • The dollar is expected to continue a gradual weakening trend in 2026, driven by Fed rate cuts relative to other developed markets.
  • Cyclical currencies may outperform, but the gradient of dollar weakness will be shallower than in 2025.

Risk Assessment

• Primary Risk: A deterioration in the U.S. labor market triggering the "SOM Rule" (a 0.5 percentage point rise in the unemployment rate within a year) could signal an impending recession.
• Market Impact: If recession risks are priced in, markets could see dramatic shifts, including lower equity valuations and wider credit spreads.
• Secondary Risks:
  • Inflation proving stickier, preventing expected central bank easing.
  • Fiscal risks gaining traction if growth remains robust without immediate inflationary relief.
• Investors are advised to maintain exposure to equities while managing overexposure to volatility risks associated with valuation and AI narrative debates.