Growth, inflation, interest rates: towards a new equilibrium - December 22, 2025

Remarkably resilient, global growth is expected to reach around 3% in 2026, with a better regional balance than in 2023-24. Inflation would remain under control in the central scenario presented below, and interest rates would stabilise.

Supported by fiscal stimulus in Germany and the Nordic countries, as well as improved domestic financial conditions (Chart 1), the eurozone is expected to grow by +1.25% in 2026, after +0.8% in 2024 and 2025 (excluding Ireland (1)).

As for US growth, hampered by import taxes but buoyed by AI and moderate fiscal stimulus, it is expected to reach around 2-2.25%, as in 2025, but will struggle to return to its pace of almost 3% in 2023 and 2024.

In Asia, Japan could see its growth reach +1% again in 2026, with a new fiscal stimulus and an unprecedented experiment in reflation (Chart 2), even if this is not without risk.

The outlook is more uncertain for China, where real estate deflation continues to rage, but which has reserves for stimulus. Elsewhere in emerging markets, growth remains strong and financial conditions are benefiting from a weaker dollar.

In this generally favourable environment, the ECB and now the US Federal Reserve believe they have reached monetary policy neutrality. After a 200-basis-point cut, interest rates set by the two major central banks should soon stabilise at around 2% in Europe and 3-3.25% in the United States.

Crucially, inflation should remain under control. Disinflation in rents and wages is allowing US inflation to offset the temporary effect of customs duties. Global energy prices are trending downwards, and China continues to export its deflation. This situation allows central banks to maintain their ‘put’, i.e. their ability to act if growth disappoints.

Most Fed members are more concerned about the sluggish labour market (Chart 3) than inflation. Despite the AI boom, the US economy is less dynamic, particularly in terms of household consumption and the property market. In Europe, the rise of the euro, the shock of Chinese competition and the limited potential for the German plan to spread to the rest of Europe should keep the ECB on its toes.

Government bond yields are subject to recurring tensions, especially at the very long end (15-30 years). Public deficits, the investment boom (AI, defence) and Japanese reflation are worrying investors. Added to this are the risk of politicisation of the Fed and technical issues (2). However, real long-term rates, adjusted for inflation, are attractive (2.6% for 30-year US bonds, chart 4). Furthermore, long-term rates are now higher than money market rates. Finally, the Fed (and perhaps the ECB in 2026?) has ended its Treasury sales programme in order to ensure liquidity in the money market.

A new global equilibrium is therefore emerging for 2026 in the central scenario: more evenly distributed global growth, inflation under control – but still to be monitored – and, after a few more adjustments, more stable interest rates.

Our scenario is constructive for the financial markets, but the maturity of the stock market cycle makes us cautious and aware of the potential pitfalls. In addition to risk control measures (systematic currency risk hedging, reduction of specific risk through equal weighting, geographical and sector diversification, gradual increase in duration), the funds also employ optional hedging strategies on equity indices. For this reason, we will now publish equity exposure rates that take into account optional hedging (delta-adjusted).

(1) Ireland (4% of eurozone GDP) saw its GDP increase by 10% in 2025 due to (1) massive exports of pharmaceutical products to the United States in anticipation of future customs duties, and (2) a surge in profits for multinationals with their European headquarters in Ireland.

(2) Such as arbitration issues on swaps and regulatory changes affecting Dutch pension funds.