Executive Summary
Goldman Sachs economists project significant regional growth divergence in 2026, with the US economy positioned for 2.5% growth driven by front-loaded fiscal stimulus worth over 0.5 percentage points in H1. Chief US Economist David Miracle expects effective tariff rates to decline from 11% to 9.5% as midterm political pressures limit further trade restrictions, removing a key 2025 growth headwind. The $100 billion household tax cut impact concentrates in Q1-Q2, creating a temporary but meaningful demand boost. Meanwhile, Europe faces structural competitiveness erosion as China gains manufacturing market share through 20-40% cost advantages in mid-to-high tech sectors. Chief European Economist Yari Steine acknowledges only 11% of the Draghi competitiveness report has been implemented, leaving Europe vulnerable to Chinese export competition. Germany's 2% of GDP fiscal expansion provides cyclical relief but cannot address underlying productivity gaps. The Federal Reserve faces a complex trade-off with solid growth but continued labor market softening, leading to expectations of two 25bp cuts to 3-3.25%. Bank of England cuts appear more aggressive at three moves to 3%, while ECB remains on hold at 2%. China's 4.8% growth projection above consensus reflects manufacturing export strength despite ongoing property sector drag of 1.5 percentage points. This regional divergence creates distinct monetary policy paths and relative growth trajectories that should drive currency and sector rotation patterns through 2026.
Key Insights
what David Miracle, Andrew Tilton, Yari Steine said“We actually think that the effective tariff rate will fall a touch in 2026 from about a 11% percentage point increase since the Trump administration took office. We think that'll be closer to maybe a nine and a half percentage point increase.”
what David Miracle, Andrew Tilton, Yari Steine said“Our equity analyst find 20 to 40 percent cost advantages over key global competitors in the number of mid to high tech sectors and export volume growth from China has been well ahead of global growth”
what David Miracle, Andrew Tilton, Yari Steine said“We've been on a softening trend over the last half year plus we think that job growth is running two week to keep up with labor supply growth... increasingly in recent corporate commentary from earning season, we see a lot of chatter about layoffs”
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