The US economy maintained considerable momentum towards the end of 2025, with the AI-investment boom driving domestic demand.

The powerful wealth effects from the AI-fueled equity rally boosted consumer spending, while rapid advances in business spending tied to AI also buttressed growth. With the economy running above its potential rate and inflation still well above the Federal Reserve’s target, the Central Bank may delay or possibly stall rate cuts in 2026 – with officials potentially pivoting their focus back to the price stability side of their dual mandate.

The Canadian economy managed to hold firm last year, despite unresolved trade negotiations with the United States.

The labor market has defied gravity, with a string of solid monthly job gains pulling the unemployment rate lower. With the economy holding up reasonably well and inflationary pressures still looming large, the Bank of Canada hit the sidelines in late 2025 as officials weigh the upside risks to inflation against the downside risks to growth stemming from US tariffs and trade policy uncertainty.

The outlook for the European economy has improved, with investors bracing for Germany’s newly unleashed fiscal spending blitz on defense and infrastructure that is hoped to give the euro-area locomotive a much-needed boost out of stagnation.

While sectors exposed to domestic demand and fiscal expansion are expected to thrive and mitigate the downside risks to growth, Germany’s export-oriented factory sector is particularly exposed to the trade debacle with the United States and may dampen that momentum.

The Chinese economy remains on track to reach its 5% growth target for 2025.

However, imbalances between the external and domestic sides of the world’s second largest economy are looming large. While stronger than expected overseas demand stemming from the depreciation of the yuan and a trade truce with the United States have revitalized export growth, languishing domestic demand has underscored the need for additional fiscal and monetary policy support from Beijing in 2026.