Global macroeconomic and market outlook Report Interpretation

Overview

This global macro update sets out Goldman Sachs' latest growth, inflation, monetary-policy and cross-asset forecasts. Its central view is that higher energy prices linked to the Middle East conflict will slow global activity and add to inflation, although regional dynamics differ materially and AI-related investment remains a meaningful US support.

Core views

Goldman Sachs expects global real GDP growth to slow to 2.5% year-on-year in 2026 as higher energy prices associated with the Middle East conflict create a broad headwind. It forecasts global core inflation at 2.8% by year-end: the fading tariff boost and continued normalization in shelter and wage inflation should restrain inflation, but energy-price pass-through should offset part of that relief. For the US, the report forecasts 2.0% real GDP growth on a Q4/Q4 basis in 2026. Consumer-spending growth is expected to be subdued in the second half, but the AI boom should support activity through higher equity wealth and strong capital expenditure. Core PCE inflation is forecast at 3.1% in December 2026, reflecting tariffs, energy pass-through and AI demand that the report says is exaggerated by measurement issues; it is then expected to fall toward 2% in 2027 as these influences subside. The unemployment rate is forecast to end 2026 at 4.2%, and the Fed is expected to leave its policy-rate range at 3.5-3.75% for the remainder of 2026. In the Euro area, Goldman Sachs forecasts 0.8% Q4/Q4 real GDP growth in 2026. Resilient activity data provide support, but elevated energy prices and subdued consumer confidence remain drags. Following weaker-than-expected August inflation data, the report cuts its forecast for peak core inflation to 2.6% year-on-year in 1Q27 from 2.7%; it expects inflation to subsequently decline gradually to 2.0% by end-2028. The ECB is forecast to make one further 25bp rate increase in September, taking its peak policy rate to 2.5%. For China, the report expects 4.6% real GDP growth year-on-year in 2026. Broad-based export strength is the main support, while subdued domestic demand remains the central constraint. CPI and PPI inflation are forecast to rise to 1.0% and 2.0% year-on-year, respectively, largely through commodity-price pass-through. Goldman Sachs lowers its 3-, 6- and 12-month USD/CNY forecasts to 6.70, 6.60 and 6.40 from 6.80, 6.70 and 6.50, arguing that the renminbi remains deeply undervalued, export strength should persist, and stronger currency and domestic demand are likely needed to resolve China's economic imbalances. The market-forecast changes reflect these regional views. Goldman Sachs raises its end-2026 10-year Japanese Government Bond yield forecast to 3.0% from 2.5%, because markets are likely to continue pricing risks of further rate hikes until Japan's inflation outlook is clearer. It also raises 6- and 12-month MXAPJ index targets to 1,040 and 1,120 from 1,030 and 1,080, and raises 3-, 6- and 12-month TOPIX targets to 4,400, 4,500 and 4,600 from 4,200, 4,300 and 4,500, respectively, citing continued earnings strength. The report specifically flags the evolving Middle East conflict and regional oil flows as major variables. It also identifies the US-Canada tariff flare-up as a downside risk to Canadian growth and a potential source of more dovish Canadian policy, while expecting limited effects on the US.

Analysis framework

The report updates a cross-country macro baseline by linking growth and inflation forecasts to energy prices, tariffs, consumer demand, trade performance and investment. It uses Goldman Sachs Current Activity Indicators (CAIs) as measures of current growth, compares forecasts with market pricing, and translates the macro outlook into policy-rate, bond-yield, foreign-exchange and equity-index forecasts.

Methodology notes

• MacroeconomicsCredit and Debt Cycle

  Macro growth and inflation forecasting using current-activity indicators, demand conditions, tariffs and energy-price pass-through.

  The report uses CAIs to gauge current growth and combines demand, trade, investment and price drivers to form regional GDP, inflation and policy forecasts.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Energy and commodity-price pass-through into inflation and growth.

  Higher energy prices are treated as a transmission channel from the Middle East conflict into global inflation and weaker real activity.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MXAPJ Index

  Goldman Sachs raises its 6- and 12-month targets on continued earnings strength.

  Strengths

  Continued earnings strength.

  Comparison

  Targets raised to 1,040 and 1,120 from 1,030 and 1,080.

  Risks

  Global growth and energy-price headwinds remain relevant to the macro backdrop.

• TOPIX

  Goldman Sachs raises its 3-, 6- and 12-month targets on continued earnings strength.

  Strengths

  Continued earnings strength.

  Comparison

  Targets raised to 4,400, 4,500 and 4,600 from 4,200, 4,300 and 4,500.

  Risks

  Further Japanese rate-hike pricing depends on the inflation outlook.

• USD/CNY

  The report expects renminbi strength to persist and lowers USD/CNY forecasts.

  Strengths

  CNY is viewed as deeply undervalued and supported by broad-based export strength.

  Weaknesses

  Subdued domestic demand remains a Chinese macro headwind.

  Comparison

  3-, 6- and 12-month forecasts lowered to 6.70, 6.60 and 6.40 from 6.80, 6.70 and 6.50.

  Risks

  The anticipated adjustment also depends on stronger domestic demand.

Key data

• Global real GDP growth2.5% yoy in 2026Forecast; slower growth amid higher energy prices from the Middle East conflict.
• Global core inflation2.8% at end-2026Energy pass-through partly offsets fading tariff effects and normalization in shelter and wage inflation.
• US real GDP growth2.0% Q4/Q4 in 2026Subdued second-half consumption is partly offset by AI-related equity wealth and capex.
• US core PCE inflation3.1% in December 2026Forecast to fall toward 2% in 2027 as tariff, energy and AI-demand effects subside.
• US unemployment rate4.2% at end-2026Goldman Sachs forecast.
• Fed policy rate3.5-3.75% for the rest of 2026Expected to remain unchanged.
• Euro area GDP growth0.8% Q4/Q4 in 2026Resilient activity is offset by energy-price and confidence headwinds.
• Euro area peak core inflation2.6% yoy in 1Q27Lowered from 2.7% after weaker-than-expected August inflation data.
• China GDP growth4.6% yoy in 2026Export strength offsets subdued domestic demand.
• USD/CNY forecasts6.70 / 6.60 / 6.40 at 3 / 6 / 12 monthsLowered from 6.80 / 6.70 / 6.50.
• End-2026 10-year JGB yield3.0%Raised from 2.5%.

Impact & implications

Goldman Sachs' forecast changes imply a macro environment in which energy shocks complicate disinflation and restrain growth, but do not eliminate regional supports such as US AI investment, Chinese exports and Japanese and broader Asia-Pacific earnings strength. The report expects policy divergence and changing inflation risks to remain important for rates and currencies.

Risks

• The Middle East situation remains fluid, and changes in regional oil flows could alter the energy-price outlook.
• The US-Canada tariff flare-up creates downside growth and more dovish policy-rate risks for Canada.

What to watch

• Developments in the Middle East conflict and the evolution of oil flows through the region.
• The effect of the US-Canada tariff flare-up on Canadian growth and policy expectations.
• Whether Japan's inflation outlook becomes clear enough to change further-hike pricing.