The desk anticipates that emerging growth drivers will create an uneasy calm in global markets leading into 2026, as highlighted by Standard Chartered's recent analysis. Per the full note source, the interplay of geopolitical tensions, shifts in monetary policy, and evolving consumer behavior will shape both developed and emerging market asset classes. With the potential for volatility stemming from these factors, traders should remain vigilant. The consensus target for the EUR/USD pair is currently set at 1.075, with a range reflecting diverging views among major banks.
What the desk is arguing
The desk posits that the global economic landscape will be influenced by new growth drivers, including technological advancements and demographic shifts, which may lead to an 'uneasy calm' in markets as they adjust. Per the full note source, these dynamics could result in both opportunities and risks for traders, particularly in the foreign exchange space.
Key evidence supporting this view includes projections of moderate GDP growth in both developed and emerging markets, which Standard Chartered estimates will hover around 3% annually through 2026. This growth, however, is tempered by potential geopolitical disruptions and inflationary pressures that could impact central bank policies.
Where it sits in our coverage
Our consensus target for the EUR/USD pair is 1.075, with a range from 1.04 to 1.12. Specific targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which is positioned at the higher end of the range, while bofa represents a more cautious stance at the lower bound, indicating a divergence in outlook among major players.
How other firms see it
Aligned firms like jpmorgan and citi share a bullish outlook on the EUR/USD, anticipating a gradual recovery supported by easing inflation. Conversely, bofa and hsbc maintain a bearish perspective, citing persistent inflation risks and potential central bank tightening as key concerns.
Watch the EUR/USD closely as it reflects broader trends influenced by the ECB's monetary policy and the Fed's interest rate decisions, particularly as they relate to inflation indicators and employment data.
What the calendar says
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stanchart
Hello and welcome to the Standard Chartered Global Outlook for 2026 podcast. We are recording this on the 15th of December 2025. I'm your host Manisha Tank and with me are Eric Robertson, Global Head of Research and Chief Strategist, Razia Khan, Head of Research for Africa and the Middle East, Divya Devesh, Co-Head of FX Research, ASEAN and South Asia.
The focus for the global economy is expected to shift to fiscal spending and domestic priorities in 2026. After a resilient 2025 driven by exports and supportive monetary policy, this shift comes with risks that deserve exploration. So, let's get straight into it.
Eric, you have flagged future volatility, rising interest rates in Japan and an inflation outlook that shouldn't be taken for granted. So, why don't you walk us through your top red flags? The thing that I think was most interesting about our outlook is that from a bottom-up point of view, it looks like our growth outlook for the global economy was going to be relatively consistent or unchanged from 2025.
The movement under the surface was especially interesting and some of those themes were this transition from monetary easing to fiscal easing and the transition from an economy heavily dependent on net exports to one more domestically focused, both from the consumer spending side and domestic investment side. The outlook is a relatively benign transition if you look at the numbers, but I would argue that the risks around the baseline scenario are much wider in both directions. If you're going to make a transition to domestic-led growth, whether it's the consumer or businesses, there is quite a bit of uncertainty around that in a number of places.
The easiest way for policymakers to try and mitigate that uncertainty is by increasing fiscal stimulus. The challenge with fiscal stimulus is that a number of economies simply don't have the fiscal resources to be able to do that. They would have to borrow and they would have to issue more debt to fund that fiscal stimulus.
In a world where we have a record amount of global debt outstanding, what happens to global financial conditions and global liquidity if we were to see a significant increase in debt issuance? If we were to see an increase in financing costs related to that, does that put these fiscal stimulus plans on hold? Does it create risks for consumer and business borrowers?
We're relatively comfortable with this idea of a transition year that leads to a consistent level of growth, but I think the way that transition happens has a number of potential speed bumps attached to it. Eric, briefly, remind me, what was the growth forecast in 2025 and what is it for 2026? So 2025 growth looks like it's going to come in around 3.4% and our forecast is for more of the same in 2026.
Okay, so that's good for our overall context as we carry on. Razia, let me pick it up with you. Global fiscal stimulus and borrowing have become major themes, clearly.
Do you think there's too much complacency about inflation and the risk around inflation plus fiscal borrowing worldwide? There is an expectation that we're going to see a shift in the drivers of global growth as we get into 2026, much less reliance on just monetary policy easing, much more reliance on fiscal stimulus. In the US, we've already had significant fiscal stimulus.
That was an economy that was running a fiscal deficit almost three times what we would think of as the norm for a developed economy. And with all of the political risks ahead of the mid terms, if we should see greater fiscal stimulus, the way the market reacts to that is going to be very important to gauge. Elsewhere, with Europe having to take on more of the burden of its own defense spending, markets have almost welcomed this stance.
The belief that Germany had not quite engaged in significant enough or sufficient fiscal stimulus in the past and this could now change. But yes, overall, we can't ignore what is happening to global debt levels. With any sort of fiscal stimulus, there's always the hope that fiscal multipliers will be strong, that there will be growth to show for it.
And the market's reaction to that stimulus could change very significantly if it turns out that we're not really seeing such significant multipliers. You mentioned debt levels. Are there any specific areas, regions or countries where we're seeing unprecedented and worrying debt levels?
If we had gone back in time, just after the COVID crisis, developed market inflation, very strong need to tighten monetary policy very quickly in reaction to that. The market's focus on who was vulnerable to that tended to be on developing economies, on emerging and frontier markets. They were ill-equipped to cope with the rapid rise in funding costs and therefore they were seen to be most at risk of potential debt crises, which we did see taking place in a number of African countries, for example.
Fast forward a few years and the sentiment is very different. A lot of DM heavy concerns seem to come about. Look at recent market reaction in France to the political backdrop there, the changing politics, whether it would allow for sufficient fiscal reforms, the concerns about the UK that never quite go away.
They do tend to ebb and flow depending on what's happening at the time. But we very much seem to be shifting to a more DM focused concern around debt sustainability. And this is why the ability to actually bring about a more supportive growth environment that might lead to some receding of these market concerns will be all important.
Dhevesh, how do you see Asia's risk profile? And what are the currency markets as a barometer telling us about the very diverse outlook in 2026? 2025 was supposed to be the year of the tariffs, the year of the trade wars, and Asia was right at the front of the firing line. But what is really surprising is just how resilient Asia's growth has proved to be.
For context, we are looking at 5.3% growth for EM Asia overall in 2025. This is one of the strongest years we have had in a long time. And even more surprisingly, the regional outperformers have really been economies which are trade reliant.
So the likes of Singapore, Malaysia, Taiwan. What has really helped the region? I would say three main factors stand out.
There has been plenty of monetary and fiscal policy support. Exporters did a lot of front loading ahead of the tariff implementation and the broadening out of AI related exports also helped the region's growth. Now looking ahead, we're still expecting a 4.9% resilient growth profile for the region overall in 2026.
But the big change really for us is in monetary policy. 2025 was a year where central banks across the region delivered significant amount of monetary policy easing. They had a window where inflation was low, the dollar was generally soft, and the Fed was delivering rate cuts. Now we expect all of these factors to turn.
And as a result, we think the monetary policy easing cycle is coming to an end. And we expect maybe one or two more rate cuts in a few countries in the region. Eric, I have had it said to me that the tariffs on China, despite this front loading of exports have actually started to have a very detrimental impact on some Southeast Asian economies.
Is this something that's on your radar? Absolutely. 2025 has been a year where China's overall economy has dramatically outperformed people's initial expectations. Overall exports have remained incredibly resilient.
And China is posting another record trade surplus and all of this in a world where tariffs were meant to create a big drag on both global growth and global trade. But when you scratch below the surface, the story gets even more interesting, which is that according to most estimates, China's exports to the U.S. are down about 25% year on year. So that's a huge change in export momentum.
And yet they have managed to completely offset that with exports to other parts of the world. There has been a massive redirection of China's exports to other economies in Asia, to economies in the Middle East and Africa, parts of Europe and Latin America as well. Part of the driver of that has been price.
We are seeing a significant disinflation or deflationary trend in EM exports. A lot of that is China exporting its deflation to other parts of the emerging economies. Thailand's an interesting example where their domestic companies that may historically have competed with China are now finding that they are being completely priced out of the market.
You have this very strange dichotomy where consumers of Chinese goods are getting the benefit of an influx of supply at attractive prices. But for the competitors, it's a challenge. The other big theme for 2026 is domestically in China.
Domestic demand is still very soft. I have a handful of concerns, the first of which is that consumer spending was partially supported in the first part of 2025 by subsidies and consumer goods trade-in programs. We think many of those will be expiring.
There's also been a longstanding tax subsidy for purchasing electric vehicles. Those taxes, subsidies are going away, at least in part. I see a number of headwinds on the horizon for China's domestic economy, which I don't think the consensus has fully caught on to yet.
There are some very good economic stories in Asia, but China's domestic story is going to have a big impact on how much deflation they export to the rest of the region. Again, going back to this transition that we keep talking about to domestic demand, I think China is going to be a really crucial case study in that transition. Eric raised something really interesting there about trade opportunities for other Asian countries.
We need to talk about India. Divesh, let me put that one to you. How do you see India's growth cycle looking over the coming year, particularly when it comes to trade and exports?
We think that India will still remain among the fastest growing economies in the world. For the fiscal year ending March 2026, our projected GDP growth is at 7.5%. For the next fiscal year, we expect a slight slowing to 6.6%.
We have seen a number of positive drivers in the last few quarters. We have had significant amount of monetary policy easing. We have had tax rebates on income tax.
We have also had GST normalization. We think all of these factors will contribute to better consumption driven growth profile in the next few quarters. What remains a clear headwind for India is the continued negotiation that we have on tariffs with the US.
It is still not clear by when we will see a trade deal emerge and that continues to pose some downside risk to the growth profile. Speaking of reform, Razia, let me bring it to you because reform agendas in sub-Saharan Africa, have they been able to outpace some of the discontent that has led to protests previously in some markets? When we look at the root causes of reform, we have a younger generation who have not necessarily known the robust growth that was available to generations prior to them.
The perception that they were having to take on all the heavy lifting when it came to fiscal consolidation, governments trying to push through tax policies that were seen as unpopular, Kenya springs to mind, widespread protest, it vastly complicated the ability of the government to deliver the necessary fiscal consolidation. But it's not the case that there has been a consistent story all across Africa. Take Nigeria, for example.
From mid-2023, Nigeria undertook exceptionally difficult reforms, but with broad-based consensus that whether it was foreign exchange, liberalisation, the removal of fuel subsidies, this was something that needed to be tackled. At one point, food inflation in Nigeria was running at around 40% year-on-year, but the hope was that the benefits of the reform would come through quickly enough to be able to deal with any wider discontent. Now, we are seeing a disinflation trend taking place in Nigeria.
We've started to see more significant monetary easing from the central bank. The hope is that growth numbers will continue to pick up. Private sector lending will be supported by a number of different factors.
But the critical point about most reforms is that the pain comes first. The reward tends to come a lot later. And therefore, for policymakers, it can be a very, very fine balancing act to get this right.
Another big question is whether or not the AI bubble is going to burst. And is it actually an AI bubble? Now, one of the areas in the world that you cover, which has been really getting very invested in AI has, of course, been the GCC.
Let's go back to what the drivers of this investment in AI are. The Gulf as a region has been trying to move ahead of the climate transition. There has been a significant focus on a number of different areas of diversification, whether that's boosting their own financial services, industries, whether that's looking at investment in clean tech.
And AI also fits in with this. Traditionally, this is a region where energy costs have been low. If we're looking at who might be prepared to come up with both the capital needed for data centres and who might have a natural advantage in that regard, given energy costs, the GCC really does stand out.
But it raises the question, has there been too much investment too quickly when the returns are not yet adequately known? This uncertainty is not likely to go away very quickly. But for the Gulf as a region, this needs to be seen as just one of its avenues of diversification.
What we've seen is the rise and rise of valuations until very recently, not very interrupted at all. Some equity analysts would argue that on PE ratios, at least, this doesn't really compare with previous bubbles. Take the dot-com bubble, for example.
Others would say a lot of the investment has been generated through free cash flow, especially for the more dominant firms in the sector. That creates a different set of risks compared to firms that might just be dependent on borrowing. We'll have to see how things play out.
And crucially, what will need to be gauged is the take-up of AI, the actual returns that are available And with this discussion of AI, I want to transition into what that has actually meant for the dollar divish. We all thought that de-dollarisation was a trend. But actually, we've seen a robust dollar over the last year.
There are obviously questions to be asked about Asian currencies in 2026 against the current backdrop, because a lot of that AI infrastructure is being built by Asian chip makers, for example. First of all, is this all connected or am I going down the wrong pathway? I think it's all connected.
If I think about 2025, we had all the ingredients in place for a fairly strong performance by Asian currencies. We had economies which were outperforming on growth expectations. We had decent asset performance, both on equities and on local currency.
Risk appetite was strong. And even from a terms of trade perspective, energy prices were low and memory chip prices were high. But despite all of that, Asia FX has underperformed.
For all the discussion on de-dollarisation, I don't really see any evidence of that, at least in Asia. In fact, we have argued that we are seeing a re-dollarisation across Asian economies. And there are really three aspects to this re-dollarisation.
Firstly, exporters in Asia continue to hold on to their dollars. We see figures of exports growing 30%, 40% year on year. But the reality is that most of these export proceeds are not getting converted into local currency.
And when we ask the exporters in the region, the key reason that they highlight is that if they hold their export proceeds in dollars, they get 4% interest rate. While if they convert it into local currency, they might be earning only 1.5% or 2%. Secondly, we are seeing very strong demand from both retail investors and institutional investors across Asia to invest in the AI theme.
And what that means is obviously investing in US equity markets. The amount of equity outflows from Asia in 2025 is almost six to seven times higher than what we saw in 2024. Thirdly, we are also seeing a change in hedging decisions by both foreign investors and domestic investors.
The inflows that we are seeing from foreign investors into the region are increasingly FX hedged. And at the same time, domestic investors continue to unwind their FX hedges given the expensive costs involved. So overall, we are still seeing redollarization in the region.
We expect Asia FX to continue to underperform in 2026 relative to other regions. Eric, let me bring the next question to you. Our market is actually getting too comfortable with this low inflation story.
It is amazing how quickly we've moved into a world where inflation risk seems to have fallen down people's priority lists, and maybe even for central banks as well. In 2025, a number of central banks around the world had this perfect opportunity where the dollar was weakening, so therefore their currencies were strengthening, inflation was low, oil prices were low. It gave central banks around the world this unprecedented flexibility to ease monetary policy.
Something the team has written about quite a bit is if we move back into a world of more aggressive fiscal stimulus, and we move back into a world where we start to see some shortages of various markets and products, whether it's in the tech space or the commodity space or the housing space, and let's say that the dollar starts to strengthen again and currencies start to weaken, all of a sudden, the perfect environment that central banks had in 2025 goes into complete reverse in 2026. Do they tighten monetary policy to preserve the stability of their currency and to try and keep inflation down but sacrifice growth? Or do they go all in on growth and say, well, you know what?
The price that we have to pay for supporting domestic demand and domestic growth is higher inflation. This inflation debate is going to come back. I also think, back to the previous question that you had asked, on the AI front, there's a built-in assumption that AI and all of the technology innovation that we are seeing is going to be very deflationary for a number of economies.
Now, that may be true in the medium term, but I think it's very hard for central bankers to construct monetary policy today based on a forecast of how that might play out. I don't think anybody really knows the answer to that and certainly doesn't know it today. And given that, I did just want to ask, if these global conditions shift, if US Treasury yields spike, for example, then what?
I think we will find that the new Fed chair, as well as the rest of the voting members of the FOMC, will continue to conduct policy based on the economic outlook that they foresee. That's not going to change. If we then go on to the topic of fiscal stimulus, inflation risks, etc., and if the bond markets move in the direction that we have forecast, which is to higher yields, the financing costs related to all of the debt outstanding start to move up quite significantly.
And I think that was off the radar screen in 2025 because yields were generally coming down. But, you know, if we go into a world in 2026 where yields are rising, inflation expectations are rising, maybe credit spreads are rising, investors will be looking at the world and saying, you know what, we've got these large investment-grade companies who have tens or even hundreds of billions of dollars on their balance sheet. They're issuing debt.
That looks relatively risk-free compared to maybe a government that is running a massively inflationary budget deficit and is going to have to find some way of raising the revenue to pay off their debts. We're going to find that the bond markets in 2026, as well as the central bankers, are going to have to make some very difficult decisions. And I think that could create some volatility.
I always like to end with a bit of positivity and find out where the bright lights are. So I'm going to pose this question to you, Razia. There is tremendous opportunity in a time of transition, right?
And I would be curious to know where those pockets of opportunity are and who gets to benefit. We know that even though there's broad-based optimism that we'll see the consistency of growth between 2026 and 2025, it's not a picture without its risks. What we also know is that a number of regions, Asia, Africa, the Middle East, are all expected to sustain growth of 4% or even higher in the case of Asia.
Economies that still have a lot of development gains to be made, where there's sufficient growth in the working age population, where there's capital that's being deployed in new ways, technology that's being made to work differently. All of these are ultimately positive for the global growth story. Okay.
Well, we'll have to leave it there. A huge thank you to all of our panellists, Eric, Razia, and Divish. And also to our audience, thank you for tuning in from wherever you are.
I'm Anusha Tank and we'll catch you next time on the Standard Chartered Global Outlook podcast. This podcast is provided for informational purposes only. It does not constitute a personal offer, recommendation or solicitation to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices.
All related disclosures and disclaimers can be viewed in the link in the description accompanying this podcast.