Global Economic Outlook – January 2026

January 2026 is likely to set the tone for a year of moderation but still resilient global growth. The U.S. remains the key anchor, with markets focused on whether the Federal Reserve begins rate cuts at the upcoming FOMC meeting and how quickly inflation continues to cool. The UK and euro area are expected to post only modest growth, with attention on disinflation progress and the timing of policy easing by the BoE and ECB. China faces a tougher balance: sustaining a 5% growth target amid property-sector weakness and persistent trade tensions. Japan continues gradual policy normalization alongside moderate expansion. Emerging markets may outperform, but outcomes hinge on trade stability, reform momentum, and managing inequality.

USA

December 2025 consolidated a soft-landing macro profile: Q4 growth tracking remained solid even as momentum eased, inflation data improved meaningfully (with expectations also easing), and labor market data stayed resilient with only gradual cooling signals.

The month’s main frictions were flattening real consumption, uneven manufacturing, rate-sensitive housing softness, and a capital-flows watchpoint—factors that collectively argue for cautious optimism rather than a re-acceleration call.

December Review

December 2025 is framed as a month that further validated a U.S. “soft-landing” regime: growth stayed solid but cooled at the margin, disinflation became more convincing, and the labor market remained resilient even as broader cooling signals appeared. The central shift highlighted is that clearer disinflation confirmation (especially the softer CPI surprise) arrived alongside flattening real consumption and uneven manufacturing, strengthening the case for gradual easing into 2026 without implying an imminent downturn.

Growth and activity remained constructive but showed modest deceleration. Q4 growth tracking was revised down, with Atlanta Fed GDPNow moving from 3.8% to 3.5%—still “solid,” but signaling softer marginal momentum. Under the surface, the cycle remained consumer-led: Q3 GDP was revised to 4.3% annualized and real consumer spending rose 3.5%. Manufacturing, however, was not portrayed as a leadership driver; instead, the note emphasizes uneven factory momentum and a services-led expansion. Autos were cited as a relative bright spot, with vehicle sales rising to 15.6M from 15.3M, offering late-year support to goods activity even as other components cooled.

Inflation is presented as the month’s clearest positive development. Core PCE (September) is described as consistent with a gradual disinflation path (core PCE 0.2% m/m and 2.8% y/y, down from 2.9%). The standout in the month’s compilation is the November CPI downside surprise: headline CPI slowed to 2.7% y/y (vs 3.1% expected; 3.0% prior) and core CPI to 2.6% y/y (vs 3.0% expected; 3.0% prior). Inflation expectations also improved in the Michigan survey, with 1-year expectations easing to 4.1% (from 4.5%) and 5-year to 3.2% (from 3.4%). The net message is that disinflation “looked increasingly durable,” which reduces the need for policy to stay highly restrictive, provided activity cools in an orderly way.

Consumers remained the core engine, but the report stresses a meaningful moderation in real spending momentum. Personal income was positive (+0.4% m/m, above expectations), but personal spending slowed to +0.3% m/m from +0.5%, and real personal consumption was flat at 0.0% m/m after +0.2%. Credit also pointed to restraint, with consumer credit rising only $9.18B in October (below expectations and the prior reading), consistent with tighter financial conditions weighing on credit-driven spending. Sentiment improved on some measures, but broader confidence was mixed—supportive of the idea that households are still spending, but not in a uniformly exuberant way.

Labor market conditions are characterized as “cooling, not cracking.” Weekly data in the four-week set show volatility but no decisive deterioration: one snapshot showed initial claims falling to 191K, while later readings had initial claims rising to 236K even as continuing claims fell—consistent with incremental cooling rather than a sharp slide. Challenger job cuts also moderated sharply in November (71.3K from 153.1K), reinforcing the view that corporate layoff plans were not accelerating in the period covered. This matters for the soft-landing thesis because continued labor resilience helps support consumption even as real spending growth flattens.

Manufacturing vs. services and housing reinforce the same “two-speed” structure. S&P Global flash PMIs for December stayed expansionary (manufacturing 51.8, services 52.9, composite 53.0), consistent with services leading. Regional factory surveys were weaker and more volatile (Philadelphia Fed -10.2; Kansas City Fed -3), aligning with the conclusion that manufacturing is not powering the cycle. Housing is described as stabilizing but still rate-sensitive: existing home sales improved modestly (4.13M, +0.5% m/m), the NAHB index edged up (39 from 38), but mortgage applications were weak and financing conditions remained a constraint (MBA 30-year rate around 6.38%).

Trade, fiscal, and capital flows are split between supportive near-term signals and a market-relevant watchpoint. The trade balance improved as exports rose to $289.3B and imports to $342.1B, narrowing the deficit to -$52.8B (better than expected). The November federal deficit improved to -$173.0B. The key concern flagged is international capital flow softness (TIC), with foreign buying of U.S. Treasuries turning negative (-$61.2B from +$25.1B) and overall net capital flow at -$37.3B (from +$184.3B). The note does not present this as an immediate macro shock, but it does connect it to term premium dynamics and market comfort with a sustained easing narrative.

Policy and financial conditions are framed as supportive of “cautious optimism.” The Fed cut the policy rate to 3.75% from 4.00% while rate projections were unchanged across horizons; markets leaned dovish with front-end yields moving lower. Longer-end dynamics were described as less cooperative, reflecting term-premium/uncertainty (including a higher 30-year yield in the cited auction week) and week-to-week fluctuations in reserves and balance sheet/liquidity metrics. Energy indicators were not treated as a dominant macro driver but were consistent with steady supply conditions.

US Economy, January 2026 Outlook

Looking ahead, the U.S. outlook for January 2026 begins from “solid household balance sheets and easing supply constraints,” but highlights potential headwinds from high tariffs and the lagged effects of tight monetary policy later in 2026. The note emphasizes a dense January calendar: ISM manufacturing (Jan 5), ADP and ISM services (Jan 7), the jobs report (Jan 9), CPI (Jan 13), PPI plus existing home sales (Jan 14), and later-month releases including retail sales, industrial production, housing starts/permits, and late-month GDP and PCE-related prints.

For the Jan 27–28 FOMC meeting, the baseline is a hold at the current 3.50%–3.75% target range. January is described as “communication-heavy” due to the absence of a new SEP/dot plot and the annual voter rotation; the note highlights CPI (Jan 13) and the jobs report (Jan 9) as the primary gating inputs, alongside questions around financial conditions and balance-sheet implementation. A qualitative scenario map is laid out: base-case “hold + wait-and-see,” hawkish hold (inflation vigilance), dovish hold (labor downside), and a low-probability surprise cut unless data “break materially” before the meeting.

Finally, the market lens is explicitly event-driven and two-way. For the USD, the baseline is range trading with CPI and payrolls as the cleanest directional catalysts and Fed messaging as the swing factor; the profile described is mildly firmer-to-sideways DXY early in January around ~98, then higher volatility into the CPI/NFP follow-through and the FOMC window. For U.S. equities, the bias remains constructive (AI capex, resilient profits, and the expected rate-cut path), but January is framed as structurally two-way because earnings guidance and Fed framing can both reprice the 2026 trajectory, raising the odds of a choppier tape rather than a clean trend.

British Economic Review and January 2026 Outlook

January 2026 is more likely to be a data-validation month than a policy-action month for the UK. A benign inflation mix and softer wage growth would encourage markets to price a smoother easing path and support rate-sensitive UK assets. Conversely, sticky services inflation or re-accelerating wages would keep the Bank of England cautious and reinforce the baseline of subdued growth under restrictive conditions.

UK December 2025 Review

December 2025 data portray a UK economy operating close to stall speed. Growth was flat-to-negative at the margin, domestic demand continued to cool under tight financial conditions, and construction remained a clear drag. The main positive offset was firmer disinflation: softer CPI and near-zero shop-price inflation improved the policy backdrop and gave the Bank of England room to begin easing. However, the narrow MPC vote split underscores a cautious, data-dependent pivot rather than the start of an aggressive cutting cycle.

Activity indicators were consistent with weak, two-speed dynamics. Surveys pointed to limited momentum: services remained modestly positive, manufacturing was broadly flat, and construction stayed deeply contractionary (Construction PMI 39.4). Hard data aligned with that picture, with monthly GDP down -0.1% m/m and the 3M/3M measure also negative, while tracker estimates suggested momentum did not meaningfully improve into November. Under the hood, services were a key constraint (Index of Services 0.0%), and while production rebounded on the month, it remained negative on the year—more consistent with stabilization than a durable re-acceleration.

Inflation improved meaningfully across the four-week window. Headline CPI eased to 3.2% y/y (with -0.2% m/m), and core CPI also softened to 3.2% y/y. Retail pricing cooled sharply, with the BRC Shop Price Index slowing to 0.6% y/y, consistent with goods disinflation and discounting. Pipeline pressures appeared mixed but not alarming, reinforcing the view that inflation risks were becoming more balanced.

Demand-side data stayed soft. Retail sales disappointed again (headline -0.1% m/m; core -0.2% m/m), and big-ticket indicators were weak, including car registrations (-1.6% y/y). Credit dynamics cooled (consumer credit £1.119B), and broad money contracted (-0.2% m/m), consistent with restrained spending. The labour market cooled gradually—unemployment held at 5.1%—but wage growth remained comparatively firm (earnings ex-bonus 4.6%), supporting the MPC’s caution. Housing prices were broadly stagnant, and activity remained constrained by high mortgage rates (6.81%). Externally, trade was a headwind as the deficit widened, but the current account narrowed and business investment (+1.5% q/q) was a relative bright spot.

United Kingdom Economic Outlook — January 2026

The UK enters January 2026 in a fragile position after narrowly avoiding recession in 2025. Growth momentum is weak, household balance sheets face renewed pressure from high borrowing costs, and a soft housing market continues to constrain confidence and discretionary spending. Structural headwinds—especially weak productivity—remain a drag on potential growth, while business sentiment is cautious amid uncertainty over demand durability and persistent trade frictions. The main potential tailwind is disinflation: easing price pressures and the prospect of further Bank of England rate cuts later in 2026 could gradually support real incomes and purchasing power. Markets will also monitor fiscal-policy signals ahead of a general election, as policy updates could shift confidence and the growth outlook.

Consensus expectations remain subdued. The OECD projects UK GDP growth of roughly 1.2% in 2026, below the global average. Inflation is still above the BoE’s 2% target but is expected to moderate through 2026; however, sticky wage growth could slow the pace of easing. Importantly, there is no MPC decision in January—the next policy meeting is February 5—so January becomes a “setup month” where data and policymaker communication drive market repricing.

The January calendar is data-heavy. Early in the month, ONS real-time indicators (Jan 8) will provide timely signals on mobility, consumer behaviour, and business conditions. A major focal point is Jan 15, when monthly GDP for November, production, construction output, and trade data will reveal whether activity held flat or slipped late in 2025. Mid-month updates will include Rightmove house prices, followed by labour-market prints (ILO unemployment and earnings), which will be closely watched for evidence of slack and wage persistence. Later in the month, the December CPI report will test whether disinflation is broadening into domestic services, followed by retail sales and GfK confidence to gauge demand momentum into the new year.

For markets, January’s key “gate” is whether cooling in inflation extends beyond goods and energy into services—still elevated and wage-linked. With no rate decision, single releases can drive outsized moves in UK rates and GBP. Risks skew to the downside: faster labour-market cooling could revive recession fears and pull forward cut expectations, while stubborn services inflation and wages could delay easing and create a “stagflation-lite” backdrop for UK assets.

Eurozone Outlook — January 2026 & December 2025 Review

January 2026 is a “data and communication” month for the euro area. With the next ECB Governing Council meeting on February 4–5, markets will use January’s inflation, wage, and activity signals to assess whether disinflation is durable enough to keep the 2026 bias gently tilted toward easing, or sticky enough—especially in services and wages—to justify a longer hold.

The December 2025 four-week macro flow reinforced a “slow growth + cleaner inflation” regime. Headline indicators improved modestly and employment continued to edge higher, but underlying momentum remained fragile because manufacturing—particularly in Germany and France—stayed weak and producer-price dynamics were soft. The ECB remained on hold, so attention shifted toward guidance and wage follow-through as the key gate for any 2026 easing debate.

Growth data pointed to slow expansion rather than a stall. Euro area Q3 GDP rose 0.3% q/q and employment rose 0.2% q/q. Country hard data were mixed but broadly consistent with a “grind higher” narrative: Italy’s retail sales improved in October, French industrial production was slightly positive, and Spanish industrial production remained positive year-on-year. Later in the period, industrial signals stayed uneven, leaving the broader growth impulse steady but not accelerating.

Surveys continued to describe a two-speed economy. PMIs remained services-led and expansionary in aggregate, while manufacturing stayed weaker and more inconsistent across the bloc, with Germany and France again the main soft spots. The practical takeaway is that domestic demand and services are carrying the cycle, while manufacturing has not yet delivered a clear euro-area re-acceleration.

Inflation data stayed constructive. Headline CPI in the notes hovered around 2.1%–2.2% y/y, while core inflation held around 2.4% y/y, and monthly prints were negative. Pipeline pressures were subdued: producer prices were only marginally higher on the month and still lower on the year, indicating limited upstream cost pressure. Cross-country dispersion persisted (very soft France versus firmer Germany and Spain), reinforcing an ECB stance that remains patient and data-dependent.

Labor conditions looked stable rather than deteriorating, with euro area unemployment at 6.4% and mixed national signals. For policymakers, the more consequential point was moderation in wage and labor-cost readings in Q3; if sustained, it supports the view that services disinflation can continue. Consumer indicators suggested demand is holding up but not re-accelerating: retail sales were flat month-on-month in October but positive year-on-year, and EU auto registrations softened sequentially in November at the bloc level.

Externally, the sector offered a mild cushion but not a decisive growth engine. France’s balances improved in the cited period, while Germany’s surplus narrowed, and the broader euro area current account was described as broadly supportive later in the summary. Funding conditions were generally stable across core and semi-core sovereign auctions, with occasional pockets of sensitivity in Italy.

Entering January, the macro setup is “slow but stabilising”: modest, uneven growth alongside intact disinflation that still needs confirmation in sticky components. The ECB’s December 18 decision kept rates unchanged (deposit facility 2.00%), and staff projections point to headline inflation averaging about 1.9% in 2026 and growth around 1.2% in 2026. Expectations can diverge in an inter-meeting month: economist surveys have leaned toward holding through end-2026, while rate futures have implied about one 25 bp cut.

What matters most in January is (1) whether services inflation and wage dynamics keep cooling, (2) whether the industrial/export channel shows clearer stabilisation, and (3) whether cross-country divergence widens or narrows. Key dates include the euro area SAHICP flash estimate (Jan 7), the SAHICP final (Jan 19), and the Eurozone Q4 2025 GDP flash estimate (Jan 30), which will condition expectations for the February meeting. January largely sets the runway for February’s ECB decision.

Chinese Economic Outlook, January 2026

China enters early 2026 with policymakers widely expected to target roughly 5% GDP growth to stabilize activity and reduce deflation risks. Advisers argue that achieving this will require continued fiscal and monetary support given three persistent drags: a prolonged property downturn, overcapacity, and weak domestic demand. The OECD expects growth to slow toward about 4.4% in 2026 as fiscal support fades and U.S. tariffs weigh more heavily, while economists anticipate the PBoC may resume interest-rate and reserve-requirement cuts in early 2026 after pausing in late 2025.

December Review

December’s macro picture remained a “slow-grind” rather than a clear upswing. Activity breadth slipped below neutral, with the official Composite PMI falling to 49.7, manufacturing still contractionary at 49.2, and non-manufacturing dropping to 49.5—suggesting services and construction were no longer reliably offsetting industrial softness. Caixin surveys reinforced the cautious tone among smaller and more market-exposed firms: manufacturing eased to 49.9 and services, while still expanding, slowed to 52.1. The practical takeaway is an economy near flatlining: manufacturing weakness, services losing pace, and aggregate momentum drifting just below stall speed.

Property remains the central structural overhang and the key constraint on confidence and transmission. Expectations are anchored to a multi-year adjustment: home prices are projected to keep falling through 2026, with stabilization pushed out to 2027. Persistent price declines weaken household wealth effects, pressure developer and local-government balance sheets, and reduce the effectiveness of credit-led stimulus in generating durable demand.

Financial transmission also looks impaired. Banks have been managing margins by pulling higher-yield, longer-tenor deposits and steering savers toward shorter maturities, but households still appear precautionary, keeping saving elevated amid property uncertainty. Credit flow improved on the month—new loans rose to CNY 390B and TSF jumped to CNY 2.49T—yet broader aggregates eased slightly (M2 growth to 8.0% y/y; loan growth to 6.4% y/y), implying targeted support rather than broad liquidity acceleration.

The external sector remains the key buffer. Exports rebounded (+5.9% y/y) and the trade surplus widened ($111.7B), while imports undershot expectations (+1.9% y/y), consistent with softer domestic demand. Inflation is not the binding constraint: CPI is only modestly positive while PPI remains in deflation, signaling weak pricing power upstream. Policy remained supportive but incremental, with LPRs held at 3.00% (1Y) and 3.50% (5Y). January watchpoints include whether PMIs regain 50+, tangible property stabilization, sustained TSF momentum shifting toward private demand, and any meaningful policy re-acceleration and market response.

What we can expect from Chinese Economy in January 2026

China begins January 2026 with markets balancing an official growth ambition against a still-fragile domestic cycle. Policymakers are expected to target 5% GDP growth for 2026, but the OECD anticipates growth easing toward roughly 4.4% as fiscal impulse fades and U.S. tariffs weigh more meaningfully. Against that backdrop, investors expect the PBoC to resume policy support in early 2026—through interest-rate cuts and/or reserve-requirement reductions—after pausing in late 2025.

January is effectively a macro reset month. The core question is whether Q4 and full-year outcomes show that policy support is translating into domestic-demand traction. Exports remain a stabilizer, but pricing for China risk assets is likely to hinge on whether consumption and private investment stop losing momentum. If the growth mix continues to rely primarily on external demand, markets may remain cautious and lean toward pricing additional incremental stimulus.

Deflation risk remains the key overhang, particularly via PPI deflation. Persistent factory-gate weakness compresses corporate margins, discourages private capex, and keeps the cycle vulnerable to confidence shocks. Even so, the easing path is not unlimited. The PBoC has maintained a measured stance, balancing growth support with financial-stability goals and FX considerations. Policy reference rates were unchanged in December (1Y LPR 3.00%, 5Y LPR 3.50%; 7-day reverse repo 1.40%), so the January focus is whether weak prices and soft demand force clearer easing signals or whether authorities continue to lean on targeted credit and liquidity operations.

Credit transmission—especially through housing—will be the real-time swing factor. Late-2025 dynamics showed a better headline credit impulse but still muted household borrowing under the prolonged property slump. January will test whether the seasonally strong early-year credit impulse flows into mortgage stabilization, household credit improvement, and “project completion” funding that can rebuild confidence in housing delivery. Beijing has signaled 2026 as a key year for housing stabilization via urban renewal, tailored local policies, affordable housing expansion, and financing support, which shapes expectations even if rollout is gradual.

External demand is supportive but comes with trade-policy headline risk. A revised foreign trade law (effective March 2026) strengthens China’s toolkit for responding to external pressure, and even pre-implementation signaling can influence January sentiment and embed a “tariff/tension premium.”

Key January events include CPI/PPI on Jan 9, the major “National Economic Performance” package on Jan 19, and PMI on Jan 31. Watchpoints are domestic-demand proof versus export-only growth, deflation persistence (especially PPI), and any shift from “measured support” toward more explicit easing guidance with implications for CNY, rates, and equity leadership.

Japanese Economic Outlook — January 2026 with December Review

Japan enters January 2026 in a policy transition: Bank of Japan normalization is progressing even as domestic demand looks uneven. The government projects real GDP growth of roughly 1.3% in fiscal 2026 (up from 1.1% in fiscal 2025), supported by a new stimulus package aimed at boosting consumption and capital expenditure. The OECD is more cautious, projecting calendar-year growth slowing to about 0.9% in 2026. Inflation is expected to remain slightly above the BoJ’s 2% target, keeping the tightening bias intact. The first Monetary Policy Meeting of 2026 is scheduled for January 22–23, making January a key month for repricing the pace and limits of further normalization.

Japan Economic Review — December 2025

December’s four-week data flow showed Japan “uneven but not breaking.” Domestic demand, especially household consumption, weakened materially, while forward-looking indicators and external demand remained more supportive. Q3 GDP confirmed a growth downshift, contracting -0.6% q/q (annualized -2.3%), as weaker capex and a net trade drag outweighed modest consumption support. Survey data reinforced a two-speed picture: services stayed expansionary (Services PMI 52.5) and the composite remained above 50 (51.5), but manufacturing stayed in contraction (49.7). Hard activity prints were volatile—industrial production improved in October but fell sharply in November (-2.6% m/m), though production plans suggested a near-term rebound.

The key weakness was consumption. Household spending fell -3.0% y/y and -3.5% m/m, a sharp deterioration that raises downside risk for Q4 domestic demand. Sentiment improved marginally (household confidence 37.5) but remained consistent with caution. Retail sales were slightly positive year-on-year (+1.0%) yet showed cooling momentum.

Inflation remained above target but showed selective cooling. National core CPI was 3.0% y/y and headline CPI 2.9% y/y, while Tokyo inflation cooled in December (Tokyo core 2.3% y/y; headline 2.0% y/y; ex food & energy 1.5% y/y). Services inflation stayed firm via CSPI (2.7% y/y). Wage indicators improved modestly, but the central question is whether nominal gains translate into real spending stabilization.

Policy normalization advanced as the BoJ raised the policy rate to 0.75% from 0.50%, triggering a material repricing in yields and tighter financial conditions. Exports were a bright spot (+6.1% y/y) and the trade balance swung into surplus, but flow dynamics were volatile. The January focus is the interaction between wages/services inflation, tighter financial conditions, and the resilience of domestic demand.

January 2026 Outlook in Japan

Japan starts January 2026 with moderate but fragile growth, inflation that remains above target in key components, and a policy regime shifting further into Bank of Japan normalization. The BoJ raised the policy-rate guideline to around 0.75% on December 19 and reiterated that, if its outlook is realized, it will continue raising rates while real rates remain meaningfully negative. Markets are also navigating a macro backdrop shaped by yen weakness, higher JGB yields, and rising sensitivity to fiscal expansion.

On growth, the BoJ’s baseline remains “steady-but-fragile.” Exports and industrial production are described as broadly flat, business investment is on a moderate uptrend, consumption is resilient but pressured by higher prices, and housing investment is declining. The key January question is whether the manufacturing/production cycle turns up early in Q1. METI’s production-forecast survey points to a modest increase in December (+1.3% m/m) followed by a large plan-based rebound in January (+8.0% m/m). If realized, this would improve the near-term activity tone, though the sustainability would still depend on exports and real-income dynamics.

Fiscal policy is supportive on paper. The government is trying to achieve its 2026 outlook to a large stimulus package (¥21.3 trillion) and expects stronger consumption and capex in FY2026 even as overseas demand remains soft. The trade-off is that additional support can strengthen growth optics but raises bond-market sensitivity to debt issuance, keeping upward pressure on yields and elevating the policy-mix risk premium.

Inflation remains above target, but the composition is central. The BoJ notes CPI excluding fresh food has been around 3%, driven importantly by food and firms passing wage increases into prices. The pivotal issue for January pricing is whether inflation broadens into underlying services and wage-driven persistence or cools as food-led effects fade. The BoJ expects CPI ex fresh food to decelerate below 2% through the first half of FY2026 as food effects wane, then rise later as labour shortages and expectations firm. Key inflation releases are National CPI (Dec 2025) on Jan 23 and Tokyo CPI (Jan preliminary) on Jan 30.

The policy center of gravity is the Jan 22–23 BoJ meeting and Outlook Report. Even if rates are held, markets will parse forecast revisions, wage language ahead of Shunto, and FX sensitivity. Yen weakness supports exporters but squeezes real purchasing power, while JGB yield moves and JPY volatility remain the main transmission channels into broader risk assets.