Goldman Sachs predicts that the global economy will grow steadily in 2026, but the job market will remain sluggish

Goldman Sachs Chief Economist Yang Jan Hatzius stated in a outlook report that the global economy is expected to maintain steady expansion next year, but the labor market will remain relatively sluggish, and inflation will gradually fall back to the target levels of central banks around the world.

In a report titled "Macro Outlook for 2026: Steady Growth, Stagnation in Employment, and Price Stability" released on December 18th, Goldman Sachs predicts a global GDP growth rate of 2.8% in 2026, higher than the market's general expectation of 2.5%. Goldman Sachs believes that the US economy will continue to outperform other major developed economies, with an expected GDP growth rate of 2.6% in 2026, mainly due to reduced tariff drag, tax reduction policies, and a more relaxed financial environment.

Meanwhile, Goldman Sachs predicts that China's GDP will grow by 4.8% in 2026- also exceeding market consensus, and strong export performance will offset the impact of weak domestic demand. The economic outlook for the eurozone is relatively bleak, with an expected GDP growth rate of 1.3%. However, Goldman Sachs pointed out that Germany's fiscal stimulus and Spain's relatively stable economic growth can to some extent cushion the pressure brought by long-term structural challenges.

The report warns that although overall output growth remains stable, improvements in the labor market may struggle to keep up with the pace of economic expansion. Goldman Sachs pointed out that the increase in productivity has raised the economic growth threshold required to create new job opportunities, and this "disconnect" is particularly evident in the United States - even though GDP performance is robust, the unemployment rate is still slowly rising.

In terms of inflation, Goldman Sachs expects that the downward trend of inflation in 2026 will accelerate again after the inflation decline in 2025 falls short of expectations. Goldman Sachs predicts that by the end of 2026, the core inflation rates in the United States and the United Kingdom will decrease from the current level of around 3% to nearly 2%, due to factors such as the gradual easing of tariff effects, slower wage growth, and a cooling of housing related inflation. In addition, the decline in oil prices, the increase in Chinese commodity supply, and the acceleration of productivity growth will also help to curb price pressures.

Goldman Sachs predicts that the Federal Reserve will cut interest rates by 50 basis points next year, bringing the federal funds rate to the range of 3.0% to 3.25%. The bank believes that the risk bias is further relaxed, citing reasons such as confidence in a fall in inflation, concerns about the labor market, and potential leadership changes at the Federal Reserve. Goldman Sachs also expects that the UK and several emerging market countries (especially Brazil) will also cut interest rates, while the eurozone may maintain interest rates unchanged.

Overall, Goldman Sachs stated that this macro outlook provides support for the stock market and many emerging market assets, and believes that the market may still underestimate the positive impact of the combination of "steady growth+inflation decline". However, the bank also warns that higher valuations, especially in sectors related to artificial intelligence, as well as fragile labor markets, may drive up market volatility. Once growth expectations are hit, downside risks cannot be ignored.