Goldman Sachs Exchanges: Outlook 2026 | Episode 2: Regional Perspectives

US Economic Outlook (David Miracle)

• Growth Forecast: Gold Sachs expects US real GDP growth of approximately 2.5% in 2026.
• Tariff Policy:
  • The effective tariff rate is forecast to decline slightly from an 11 percentage point increase to a 9.5 percentage point increase since the Trump administration began.
  • Further tariff hikes are unlikely due to upcoming midterms and potential Supreme Court rejection of the Trump administration's trade policies.
  • Replacement tariffs, if enacted under new authority, would be capped at 15%, resulting in a lower net tariff burden.
  • The negative growth impact of tariffs is expected to occur primarily in 2025, with minimal drag on 2026 growth.
• Fiscal Policy:
  • A front-loaded fiscal boost worth over 0.5 percentage points to GDP growth is expected in the first half of 2026.
  • This boost stems from personal tax cuts, extended Tax Cut and Jobs Act provisions, new business tax cuts, and selective spending increases.
  • Fiscal impulse is projected to turn roughly neutral by year-end and slightly negative in 2027 as spending cuts dominate.
• Financial Conditions & Fed:
  • Financial conditions have eased via a stock market rally, providing a gradual growth boost, particularly in the first half of the year.
  • Gold Sachs forecasts two additional 25-basis point rate cuts by the Fed in 2026, targeting a terminal federal funds rate of 3.0%–3.25%.
  • Inflation is expected to continue falling toward the 2% target as one-time tariff-induced price bumps drop out of year-over-year comparisons.
• Key Risks:
  • The labor market is the primary source of uncertainty; weak job growth relative to labor supply and rising AI-driven cost-cutting pose risks.
  • Continued labor market softening could accelerate the pace and magnitude of future rate cuts.

China and Asia Outlook (Andrew Tilton)

• Growth Forecast: China's real GDP growth is forecast at 4.8% for 2026, exceeding consensus expectations.
• Headwinds (Property & Consumption):
  • The property sector drag is estimated at nearly 1.5 percentage points of GDP growth in 2026, down from 2 percentage points in 2025 but fading through 2027.
  • Housing wealth has declined by 25%–30% over the past five years, significantly impacting household balance sheets (housing represents ~66% of wealth vs. ~10% for equities).
  • Consumer spending remains muted due to weak hiring, high youth unemployment, and decelerating wage growth; households continue to self-insure due to a limited social safety net despite high savings rates.
• Tailwinds (Manufacturing & Exports):
  • China's manufacturing sector offers 20%–40% cost advantages over global competitors in mid-to-high tech sectors.
  • Export volume is expected to grow 5%–6% annually, driven by strong performance in EVs, batteries, electronics, and semiconductor supply chain progress.
  • This competitive advantage poses challenges for other Asian export-oriented economies, forcing them to rely on domestic demand or niche specializations (e.g., high-end semiconductors in Taiwan).
• Japan Economic Outlook:
  • Real GDP growth is forecast just under 1% for 2026.
  • Headline inflation remains above the Bank of Japan's 2% target but is expected to decline; core inflation (ex-food/energy) is just below 2%.
  • Monetary policy diverges from the region, with the Bank of Japan tightening rates to 0.75% (a 30-year high) while yields rise to around 2%.

Europe Outlook (Yari Stein)

• Euro Area Growth:
  • Forecast growth is 1.3% for 2026, slightly above consensus and improved from the previous year.
  • Germany is expected to shift from stagnation to above-trend growth due to expansionary fiscal policy (public spending rising ~2% of GDP over two years).
  • Southern Europe (Spain, Portugal, Greece) is projected to outperform, supported by structural shifts like immigration and public investment.
• Structural Challenges:
  • Europe faces persistent structural weaknesses including high energy costs, regulatory burdens, aging demographics, and a lack of reforms (only 11% of the Draghi report recommendations implemented).
  • The region is losing global market share to Chinese competition, particularly as China pursues an export-led growth strategy.
• ECB Policy:
  • The European Central Bank is forecast to hold rates steady at 2% throughout 2026.
  • Rate cuts would only be considered if growth deteriorates; rate hikes would require sticky demand-led inflation in services and wages.
• UK Economic Outlook:
  • The Bank of England is expected to cut rates three times in 2026, moving the bank rate from 3.75% down to 3.0%.
  • Drivers for cuts include rising unemployment (up ~1 percentage point), increasing redundancy rates, and a rapid disinflation process.
  • The terminal rate of 3% is viewed as neutral, a stance significantly more dovish than current market pricing.

Series Context

• This transcript is Part 2 of the "Outlook 2026" series by Goldman Sachs Exchanges, focusing on regional economic trends.
• Part 1 covered general US tailwinds; Part 3 will focus on asset class expectations (equities, currencies, commodities).
• The recording date for this analysis is January 7, 2026.