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

Episode Summary

Executive Summary: Goldman Sachs sees 2026 as a year of sturdy global growth, stable-to-lower inflation, and only modest labor-market improvement, with the U.S. leading while China’s export strength widens external imbalances and weighs on Europe. Markets are partly aligned but still underpricing U.S. growth. Main risks are rising unemployment and recession dynamics; equities remain preferred over credit, with AI and fiscal easing supportive but not yet fully reflected.

Main Topics: Global growth outlook: sturdy growth in 2026 (Priority: 5/5): Jan Hatsius argues 2026 is clearer than 2025 because tariff shocks are now behind the economy, while fiscal easing, tax cuts, and central-bank rate cuts should support activity. U.S. growth and productivity (Priority: 5/5): The U.S. is forecast to grow above consensus, aided by tax cuts, refunds, business expensing, easier financial conditions, and higher productivity that raises the economy’s speed limit. China’s export-led strength and external surplus (Priority: 4/5): China’s growth is expected to beat consensus despite property and consumption weakness, driven by exports; this is seen as increasing the current account surplus and creating spillovers for trading partners. Europe’s mixed picture and Germany’s fiscal support (Priority: 4/5): Europe faces a drag from China-related trade pressure, especially Germany, but is partially offset by German fiscal easing, defense orders, infrastructure spending, and strength in Spain. Labor markets, AI, and the productivity gap (Priority: 5/5): Strong GDP growth is not translating into strong employment because productivity is rising and immigration is weaker; AI is expected to matter more over time, but its current GDP impact is limited. Inflation, central banks, and currency markets (Priority: 4/5): Inflation is moving closer to target as wage and rent pressures ease, supporting more cuts from the Fed and Bank of England; the dollar likely weakens, but less dramatically than in 2025. Risk assets, credit, and recession risk (Priority: 5/5): Equities are favored for another positive year, though returns may be lower and more volatile; credit looks less attractive because spreads are tight and debt-financed AI capex may widen future spreads.

Key Arguments: Tariff headwinds are largely in the rearview mirror, making the 2026 growth story more favorable than 2025. Fiscal support from U.S. tax cuts and German easing, plus easier financial conditions, should support global growth. The U.S. economy can grow around 2.5% even with an unemployment rate near 4.5% because productivity has improved. Markets still underprice U.S. growth; bond/equity pricing implies a growth view closer to below 2%, leaving room for upside. China’s export strength is offsetting domestic weakness, but this raises the current account surplus and pressures trading partners, especially Europe. Europe’s near-term outlook is helped by fiscal stimulus, but the longer-term industrial outlook remains challenged by China competition. Labor markets are decoupling from GDP because productivity is improving and immigration is weaker; AI effects are still early and not yet visible in GDP. Inflation should continue easing toward central-bank targets as labor and rent pressures cool. The Fed and Bank of England likely have room for further cuts; Japan is expected to tighten only gradually. Equities have a better risk-reward profile than credit because growth/inflation surprises are constructive for earnings and valuations tend to be supported by the cycle. The biggest market risk is a further deterioration in the labor market that could trigger recession fears and repricing across equities, credit, and rates.

Data Points: Global growth forecast: 2.7% - Prior-year forecast referenced as the baseline comparison for 2025 U.S. 2026 growth forecast: 2.5% Q4/Q4 - Goldman Sachs forecast for U.S. growth in 2026 Market-implied U.S. growth: a little less than 2% - Derived from joint pricing of bonds and equities; suggests upside to market expectations Euro area growth forecast: 1.3% - Goldman Sachs forecast for Euro area growth in 2026 China property sector drag: about 1.5 percentage points - Estimated subtraction from China growth due to ongoing property weakness China current account surplus: about 1% of global GDP - Projected to become the largest in recorded history U.S. unemployment rate: about 4.5% - Expected to move sideways rather than tighten meaningfully U.S. productivity growth: about 2% - Current productivity trend, up from pre-pandemic pace Pre-pandemic U.S. productivity trend: about 1.5% - 2008 to 2020 cycle productivity trend for comparison Potential AI-boosted productivity: 2.5% - Possible future productivity rate if AI impact becomes more meaningful Fed policy rate target by year-end: 3% - Expected level after additional cuts Bank of England bank rate: 375 - Current rate cited as still high, with further cuts expected BoE expected cuts: 3 more cuts in the next three quarters - Forecast for UK monetary easing Japan policy rate change: another 50 basis points - Expected gradual tightening over the next 12 months AI investment impact on U.S. GDP in 2025: not measurable / zero measurable degree - Goldman Sachs view that AI capex did not materially boost U.S. GDP last year

Pivotal Quotes: "Sturdy Growth, Stagnant Jobs, Stable Prices." — Allison Nathan referencing Goldman Sachs Research outlook title: The framing label for the 2026 macro outlook "The increases in tariffs are behind us." — Jan Hatsius: Explaining why 2026 growth looks cleaner than 2025 "We think there's really only the beginnings of impact on the labor market from AI." — Jan Hatsius: On why AI is not yet materially showing up in employment data

Implications: Investors should expect solid but less explosive returns: favor equities over credit, stay alert to labor-market deterioration, and anticipate slower dollar decline plus more central-bank easing. AI and fiscal policy matter, but recession risk remains the key market shock.