The impulse from these forces is expected to be front-loaded in the first half of 2026, and the rebound from the US government shutdown will also provide a boost. “We expect especially strong GDP growth in the first half of next year,” Hatzius writes.
However, while global GDP is rising, it hasn’t resulted in stronger performance from the labor market. Job growth across all major developed-market economies has now fallen well below the rates prevailing in 2019, just prior to the pandemic.
Although it doesn’t provide the full explanation, the job-market weakness mirrors the sharp downturn in immigration and, in turn, labor force growth, Hatzius writes. The disconnect in employment is most pronounced in the US, where job growth may well have been negative over the summer.
The impact of artificial intelligence (AI) on jobs and productivity, meanwhile, has so far mainly been confined to the technology sector, according to Goldman Sachs Research. Our economists expect that the largest productivity benefits from AI are still a few years off.
The outlook for China’s economy in 2026
The narrative for China’s economy is much more mixed. China’s ability to produce increasingly higher quality goods at lower prices remains unmatched, Hatzius writes. The world’s second-largest economy has demonstrated that it has the capability to deter high tariffs on its exports, as seen in recent trade negotiations with the US.
“All this suggests that the Chinese manufacturing sector should continue to grow robustly,” Hatzius writes.
At the same time, large parts of China’s domestic economy remain weak. While the largest drag on GDP growth from the property downturn has probably already taken place (property sales are down 60% and property starts are down 80% from the peak), our economists estimate that the property sector will produce a 1.5 percentage point drag on GDP growth next year.
“The combination of a strong manufacturing sector and weak domestic demand is pushing China’s current account surplus ever higher,” Hatzius writes.
Our economists expect its current account surplus to increase to almost 1% of global GDP over the next 3-5 years, the biggest surplus of any country in recorded history. “This is likely to weigh heavily on growth in economies that compete intensively with China such as the euro area, and particularly Germany,” Hatzius adds.
