Growth: Who Will Be the Winner in 2026?

The macro point

Every year at the same time, it's the traditional economic forecasting exercise. We cannot escape it.

Good news, the global economy is expected to continue on its path in 2026, driven by strong productivity, sustained consumption—particularly in emerging markets—and solid corporate income growth.

The growth differential between the eurozone and the United States should persist, according to us. In the eurozone, GDP should be around its potential at 1%—close to the European Central Bank (ECB) estimate. In the United States, it should be above its potential at 3%, with productivity growth at 2.5% and unemployment rate close to 4.5%—all thanks to the rapid adoption of AI. The Federal Reserve (Fed) is expected to take advantage of the anticipated decrease in inflation to lower its policy rate again. For now, it's hard to know if it will be a 25 basis point cut or two.

Unsurprisingly, US-listed companies should therefore outperform European ones (although there are exceptions, such as the European banking sector which has shown impressive performance over the past two years). As for SMEs, the economic environment remains supportive, especially for those that have chosen to go international.

Of course, the coming year is not without risks. As every year, there will be a stock market correction which could have repercussions on the foreign exchange market—as was the case last November. However, it's hard to know what will trigger it. Five significant risks need to be considered:

• Chinese deflation remains and exports to Europe since only our continent opens wide its doors to Chinese goods, contrary to what Americans do, for example.
• The integration of cryptocurrencies into traditional finance may pose risks in terms of financial stability. Some analysts believe that the marked decline in stocks in November was partly caused by the collapse of Bitcoin.
• Non-hedged positions on the yen. When the Bank of Japan (BoJ) unexpectedly raised its policy rate in July 2024, it put many institutions and hedge funds with uncovered positions on the yen in difficulty. That was the reason for the August 2024 stock market correction. A similar phenomenon could occur again if the BoJ continues to normalize its monetary policy. Market consensus, which can be wrong, expects two rate hikes in 2026.
• Tensions on American private credit. It's somewhat under the radar. But it shows that US finance, even though it is doing well overall, has weaknesses. To be closely monitored.
• A surprise rise in oil. Consensus expects a continued decline due to weak demand. Be careful, this is based on forecasts from the International Energy Agency, which are usually unreliable. Over the past 18 years, the agency has consistently underestimated demand. It cannot be ruled out that this will be the case again for 2026. An increase in demand in a constrained supply context could inevitably cause a surge in oil (probably not sufficient, however, to question the downward path of inflation).

Geopolitics will undoubtedly come into play as well. It tends to cause excess volatility rather than structural directional changes in the foreign exchange market. Therefore, this risk should be put into perspective.

Technical point

On the forex market, the euro surpassed an important resistance a few days ago, making a rise towards 1.1725 (main resistance) and possibly testing the psychological level at 1.18 now possible. By the way, this level equates to the fair value for the pair (a level consistent with economic fundamentals).

In our view, the level of the British pound is still too high relative to British economic fundamentals. Good news, it's unlikely to last. We expect the currency to weaken further in the coming months, especially with the prospect of further rate cuts by the Bank of England. This should allow the EUR/GBP pair to rise higher and test the level at 0.89.

Finally, the Chinese currency remains stable, particularly against the dollar. And it should remain so next year. The current level of the CNH has helped limit the impact of American protectionism and support foreign investment, which jumped by 4% in the first three quarters of the year.

Announcements to follow

Four central bank meetings this week: the Reserve Bank of Australia (monetary status quo), the Swiss National Bank (status quo), the Bank of Canada (status quo), and the Fed. The latter should logically lower rates by 25 basis points since a majority of FOMC members (the decision-making body) are in favor of such a decision. We expect the rate cut cycle to continue next year, especially if the successor to Chairman Powell is even more dovish (in favor of low rates). His name should be known by Christmas, according to American media. Logically, this should favor a more pronounced decline in the dollar index (although it should be much more limited than in 2025).

The information presented in this publication is provided for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not be used as a basis or considered as an encouragement to engage in any investment.