Economic Commentary

March 1, 2026

Global economy on a solid footing.

Key Points:

• The global economy enters 2026 on a solid footing. Growth in global activity was resilient in the face of US policy shocks – particularly US tariff increases. While not all countries have reported Q4 GDP, our global tracking points to growth of around 0.9% qoq (up from 0.8% qoq in the two previous quarters) and 3.3% yoy, only modestly down on the 3.5% yoy over 2024. The Global composite PMI has eased over the last two months but remains above its average level for 2025 (particularly in manufacturing).
• We have revised up our forecasts for 2026 and 2027, mainly reflecting revisions for the US, China, and Other East Asia. After a weak start to 2025 the US economy grew strongly last year; Q3 growth was even stronger than expected and Q4 GDP likely grew robustly as well (once the temporary impact of the government shutdown is accounted for). China’s economy in 2025 grew in line with its growth target, helped by a strong net trade performance but domestic demand remains soft.
• Although tariff uncertainty remains elevated – because of threats of higher tariffs as well as the pending Supreme Court decision on the validity of the reciprocal and fentanyl tariffs – there has been some rollback of US tariffs since September. While the full impact of higher tariffs and trade dislocation on global growth is likely not yet fully realised, it should fade over 2026. At the same time, growth is being supported by more stimulatory fiscal settings, monetary policy easing and continued rapid growth in AI capacity.
• While the rapid growth in AI related investment may slow, it should still be strong (and off a higher base). AI investment is concentrated in the US (as well as China) but the production of the equipment used is more diverse. The impact this is having is demonstrated by Taiwan, a major semi-conductor manufacturer which saw GDP grow 12.4% yoy in Q4, the highest annual growth it has seen since the 1980s.
• The major advanced economy easing cycles are nearing their end. Though further rate cuts are expected by the US Fed, starting in June (conditional on an improvement in inflation) and by the Bank of England, we expect fewer cuts this year (a total of 50bps in each case) before they go on hold. The European Central Bank and Bank of Canada are expected to make no change to their policy rates this year and for the Bank of Japan to continue to gradually tighten policy. Closer to home, the RBA raised the cash rate by 25bps this month, and a further hike is expected in May, and the RBNZ is also expected to tighten policy this year. 

For further details, please refer to the attached (PDF, 1MB).

Economic Commentary