Key takeaways from the Global Outlook Q4 2026
• Resilient growth and persistent inflation remain the core themes, with critical boosts from AI and defence spending.
• Above-trend growth and above-target inflation are likely to prompt the Fed to join other major central banks in hiking rates.
• Elections in the US and Europe are potential triggers for increased market volatility and sovereign-risk repricing.
“After the core themes of AI and defence spending continued to dominate the summer months, pushing bond yields close to our previous bearish targets, a new phase is beginning. We see above-trend growth and above-target inflation prompting the Fed to join other major central banks in hiking rates,” says Luigi Speranza, Head of Markets 360 and Chief Economist.
After the core themes of AI and defence spending continued to dominate the summer months, pushing bond yields close to our previous bearish targets, a new phase is beginning. We see above-trend growth and above-target inflation prompting the Fed to join other major central banks in hiking rates.
Luigi Speranza, Head of Markets 360 and Chief Economist
Global Outlook Q4 2026: AI and defence remain growth drivers
US consumption data may have softened over the summer, but Markets 360 sees this as a temporary pause rather than a fundamental inflection point. The team believes that the focus should instead be on the surprising strength of global manufacturing leading indicators.
This strength is somewhat at odds with the backdrop of trade frictions, geopolitical uncertainty, and tightening monetary and financial conditions. The team views it as evidence of the powerful growth support from AI-driven demand and increased defence spending. Notably, this is not a purely domestic US phenomenon. The high import content of AI infrastructure creates a strong correlation between data-centre expansion and US imports, driving a multi-year shift in global trade patterns. Indeed, global trade-to-GDP ratios are finally breaking a two-decade plateau, marking a new chapter in the globalisation narrative.
Furthermore, fiscal policy remains a significant driver, with the prime example being the increasingly tangible impact of German defence spending on the real economy, a key reason why the eurozone economy has proved to be resilient to the energy shock, as the team had expected. Consequently, Markets 360 retains its optimistic bias on global activity, expecting above-trend growth in the US, eurozone, and Japan over the next few quarters. China remains the outlier, as structural and cyclical headwinds continue to weigh on domestic demand.
Emerging market economies seem generally well-positioned to weather a period of higher global interest rates. AI-related investment and export gains should keep growth healthy in EM Asia and resilient in CEEMEA, while a policy-induced slowdown is to be expected in Brazil and Colombia.
Persistence is the name of the game for inflation
The report notes that recent soft US inflation prints should not be taken at face value. The combination of cyclical and structural forces, such as fragmentation and labour/goods supply constraints, suggests that inflationary pressures are likely to persist. While the AI revolution may eventually deliver disinflation via productivity gains, the team thinks its near-term impact is decisively inflationary. A powerful case in point is the extraordinary departure from six decades of sector-specific deflation in US prices for computer and equipment investment.
Meanwhile, as the geopolitical outlook remains precarious, Markets 360 expects oil prices to remain rangebound with occasional spikes. The team sees further upside for EU gas and power prices, reflecting unusually low storage levels. The report also pinpoints extreme weather events as another area to watch, as wildfires in France and Spain and low water levels in the Panama Canal, the Rhine and the Danube have demonstrated. Inflation risks remain therefore tilted to the upside, particularly for energy importers across Europe and Asia.
The central bank pivot
The central bank pivot is in full motion. Markets 360 maintains its above-consensus call for three rate hikes from the US Federal Reserve, and expects the European Central Bank to deliver one more this year, while it sees the Bank of Japan raising its policy rate by end-2027. In the team’s view the resilience of the UK economy and persistence of the energy price shock are likely to justify a single ‘insurance’ hike from the Bank of England this year.
The team thinks the expected tightening should prevent inflation expectations from disanchoring, but will likely be too timid to derail the growth story or return inflation to the 2% target within its forecast horizon.
Elevated yields and focus on fiscal risk
Markets 360 expects G4 yields to remain elevated for the rest of the year. They remain bearish on US Treasuries and see wider spreads in the eurozone. In addition to political risk, Dutch pension reform will also have market impacts in Europe.
Despite solid growth, fiscal trends remain a primary concern. Markets 360’s multi-metric analysis suggests that traditional ‘safe havens’ are becoming increasingly vulnerable to sudden shifts in sentiment. The team believes that upcoming elections in the US and Europe could trigger heightened market volatility and a repricing of sovereign risk.
Shift to neutral on USD to year end
USD – The USD enjoys a positive cyclical backdrop, underpinned by widening yield differentials and a US economy benefiting disproportionately from AI. However, the structural outlook remains negative, as the USD trades rich to long-term fair value and cross-border flow dynamics lean against it. Markets 360 expects these forces to neutralise, keeping the USD rangebound.
EM – High DM yields and a USD-supportive cyclical environment complicate an outright bullish EM view, though structural EM convergence with DM and the USD’s underperformance against its cyclical backdrop provide a counterbalance. The team focuses on finding relative value in both rates and FX in EM.
More cautious in credit and equities
Credit – AI to define the cycle: AI generates the capex that drives bond supply, the growth which necessitates rate hikes, and the disruption that creates dispersion. For the past three years, credit markets have been yield-reach, defensive, and undersupplied. That dynamic is now changing, the team thinks. As Credit becomes oversupplied alongside government bonds, Markets 360 believes this removes the predictable ‘buy-the-dip dynamic’, putting a floor under credit spreads.
Equity – From a summer rally to an autumn stall and then a winter ascent: While the summer rally has materialised, BNP Paribas Equity Research sees the risk of equities stalling in the autumn, given rising real yields, negative seasonality and elevated, albeit moderately, positioning. However, with GDP growth remaining solid, equities could reach new highs into year end.
| FAQ |
| What are the main drivers of global growth for the remainder of 2026? Growth is being supported by AI-driven demand and increased defence spending, despite trade frictions and tightening monetary conditions. |
| What is the outlook for inflation in developed markets? Inflation is likely to stay persistent, driven by structural supply constraints and geopolitical tensions. |
| What is changing in Credit markets? AI defines this credit cycle, generating the capex that provides bond supply. Credit is now becoming oversupplied at a time when government bonds are too, putting a floor under credit spreads. |
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