Fitch raises 2026 global growth forecast to 2.6%, warns of higher real rates

Global economic growth is proving more resilient than expected despite the energy-price shock, prompting Fitch Ratings to raise its 2026 world GDP growth forecast by 0.2 percentage point to 2.6%.

The new projection is only slightly below 2025 growth and close to the long-run trend, with stronger activity in the United States, eurozone and several technology-linked economies helping offset weakness elsewhere.

Why did Fitch raise its global growth forecast?

Fitch raised its forecasts for U.S. growth in both 2026 and 2027 by 0.2 percentage point to 2.1%.

Consumer spending has remained resilient despite slower growth in real household incomes, while Fitch said the AI capital-expenditure build-out “shows no sign of slowing.”

Eurozone activity has also proved more resilient than expected, prompting Fitch to edge up its forecasts. Germany’s GDP expanded 1% year-on-year in the second quarter of 2026 following three years of stagnation.

Korea received a particularly large upward revision as the boom in global IT spending intensified. Fitch said the trend was also supporting economies including Mexico and Japan, while growth in India remained very strong.

China moved in the opposite direction. Fitch cut its growth forecast by 0.1 percentage point to 4.5% as falling fixed-asset investment and weak consumer spending weighed on domestic demand despite strong export growth.

Brazil’s economy is also slowing as high real interest rates constrain credit growth and spending.

Why does Fitch expect real interest rates to remain higher?

Fitch said the global monetary-policy outlook has shifted significantly as central banks seek to prevent energy and other input-cost shocks from generating more persistent inflation.

Federal Reserve policy has turned more hawkish under Chair Kevin Warsh, while the Bank of Japan has accelerated monetary tightening and the European Central Bank has moved rates into mildly restrictive territory.

“We have seen a big shift in the outlook for real policy interest rates over the next couple of years,” Fitch Chief Economist Brian Coulton said.

He said the shift reflected a more hawkish Fed leadership and efforts by central banks to avoid the second-round effects from input-cost shocks seen after the pandemic.

Fitch expects the Fed to raise rates again in December and hold them at 4.25% next year.

That would leave the end-2027 policy rate 125 basis points above the level Fitch projected in its June Global Economic Outlook, despite a slight downward revision to its U.S. inflation forecast as wage growth slows.

What does Fitch expect from the ECB and oil prices?

Fitch expects the European Central Bank to raise rates once more in October.

However, it sees a relatively low risk of persistent second-round inflation effects in the eurozone and expects this year’s rate increases to be reversed in 2027.

That forecast assumes oil prices fall to USD 70 per barrel under Fitch’s base case.

The Bank of Japan has also accelerated monetary tightening as the global policy environment shifts toward higher real rates.

Why are global bond yields rising?

The prospect of higher real policy rates over the next several years has been an important driver of rising global bond yields, according to Fitch.

Supply-and-demand factors may also be contributing. Real yields have increased across the maturity spectrum, while some measures of term premia have risen.

Sovereigns with weaker public finances have generally underperformed the broader market, while rising yields have coincided with stronger U.S. corporate financing activity.

At the same time, central banks are continuing to reduce their footprint in bond markets.

Fitch expects higher borrowing costs to weigh on the U.S. housing sector.

Could the AI boom become a risk to growth?

Artificial intelligence investment remains an important source of support for U.S. growth and global technology demand.

However, Fitch warned that some equity-valuation measures appear elevated, creating a risk that a market correction could trigger a pullback in AI-related capital expenditure.

Such a reversal could weaken one of the forces currently supporting U.S. investment and technology-linked global growth.

Fitch also identified potential inflation risks in the United States.

Rising GDP-deflator inflation, stronger unit-profit growth and higher IT-goods prices could signal more persistent price pressures and prompt faster Federal Reserve tightening, particularly if geopolitical developments keep oil prices elevated.

China’s growing export competitiveness presents another risk, with Fitch warning that it could create additional challenges for European growth.