Although trade policy uncertainty has lessened, it continues to constrain growth, as we highlight in this year’s final Nordic Outlook. Tariffs and other trade barriers are forcing companies to adjust their cost structures; higher prices are dampening consumer demand; and elevated uncertainty impacts investment decisions. The geopolitical situation also remains extremely complicated. The tariff shock caused by the US in the spring, summer, and autumn has now been replaced by negotiations and several new “trade” agreements. Several stock markets have reached record highs, even though US tariffs are currently at their highest levels since the 1930s, and uncertainty persists regarding the content and conditions of these “deals”. Tensions between the US and China remain unresolved. The European Union and China must also yet to find a constructive way to cooperate to avoid further trade tensions.
Global GDP growth: 3% per year
Global growth forecasts have improved moderately, as the negative impact of the tariff shock — especially in the United States — has been smaller than expected. This can partly be explained by stockpiling ahead of tariff implementation and by import flows being redirected toward countries with lower tariff levels. Trends in import prices indicate that, so far, the effects of tariffs have mainly been felt by importers, through reduced earnings, and by final consumers. Exporters have absorbed these costs only to a limited extent. As a result, global GDP growth between 2025 and 2027 is projected to remain slightly above 3% p.a.
Tariff-driven early deliveries of exports and imports in the spring have influenced the growth rates of many countries. Growth was stronger at the beginning of the year and weaker toward the end. However, it is too early to dismiss the impact of tariffs entirely, and it is important to remember that multiple forces are concurrently shaping the economy. In the United States, this includes substantial investments in artificial intelligence (AI), while in Europe, it relates to increased defence spending. The impact of reduced immigration in the US is being offset by weaker labour demand. Moreover, businesses and households demonstrated a surprisingly strong ability to adapt. Growth conditions were also supported by rising stock markets and narrowing credit risk spreads.
However, elevated stock market valuations and other signs of a high risk appetite are cause for concern. There is a risk of a toxic “growth cocktail” emerging if several factors coincide — for example, an unexpected rise in inflation, higher government bond yields, a decline in stock markets, or failure of the anticipated gains in corporate earnings and productivity from AI investments to materialise. On the positive side of this “equation” is the remarkable ability of companies to address challenges and adapt to disruptions, as well as the economic stimulus generated by the growing need for investment in security, infrastructure, technology, and green energy production.
Inflation is normalising
Global disinflationary forces are considered strong enough to bring inflation back to target levels within a reasonable timeframe. This trend is driven by falling export prices in China; persistently lower raw material and energy prices; efficiency gains generated by AI; and, in several countries, by stronger currencies. The impact of tariffs on inflation in the United States is visible in the statistics, although the still-limited effect suggests that the process has only just begun. As a result, the real purchasing power of American households will continue to face certain unfavourable factors in 2026, too.
Overall, the inflation trend in recent months have, in many cases, been better than expected. However, the landscape differs across countries. International prices have generally moved in a favourable direction. Many commodity prices have remained stable, and the price of oil is expected to stay at its current level next year. We have seen a slight rise in consumer goods prices. As for food, the situation has improved, although prices for some product groups continue to rise. International commodity price indices have declined in recent months, and food producer prices in the United States and Europe have stabilised. Service prices, however, continue to increase at a slightly excessive pace and remain the main driver of inflation, reflecting a relatively tight labour market and strong wage growth.
In the Eurozone, inflation has fallen and is now close to the target level. In 2026, it is even projected to move slightly below target. China’s prolonged overproduction has created price pressures and deflation. Compared with the 2022 peak in Chinese producer and export prices, both have declined since then (with export prices falling by around 20%). Having regard to direct and indirect effects on consumer goods, we estimate that China’s price pressure has reduced inflation in many countries by approximately 0.1–0.2 percentage points per year.
Interest rates in the Eurozone and the US are converging
According to Christine Lagarde, European Central Bank (ECB) President, the ECB is in a strong position, with inflation close to target and growth expected to accelerate. We expect that the ECB’s policy rate will remain at 2% in the near term. The US Federal Reserve (FED) cut its interest rate at the October meeting, although the committee is more divided than usual. We expect that the Fed will cut the rate by a further 25 basis points in December and thereafter by an additional 75 basis points in 2026, bringing the rate to 3%. By the end of 2026, the policy rates of the ECB, the FED, and Sweden’s Riksbank are expected to be largely neutral. However, a slowdown in economic growth may encourage central banks to reduce rates further.
High (and still rising) government debt levels raise concerns about fiscal sustainability in many countries. As a result, countries differ in their room for manoeuvre: those with lower public debt and more credible fiscal policy, e.g., Germany (at least compared with other major Eurozone economies) and the Nordic countries, are better positioned to pursue more expansionary fiscal policies.
The slowdown in the US economy has been less pronounced, as substantial investment in artificial intelligence and technology continues to generate demand and provide the foundations for sustainable, high-productivity growth. At the same time, questions arise about the durability of this growth if AI-related investment slows or if household consumption growth weakens. Currently, consumption is being driven largely by a relatively small group of high-income households, and growth is occurring without an increase in employment.
Economic growth in the Eurozone: 1.4% this year, 1.2% next year
The impact of US tariffs on Eurozone growth has been smaller than expected. Indicators point to a modest upward trend, supported by Germany’s defence and infrastructure spending — with the strongest impact on GDP anticipated in 2026 — as well as rising real incomes. Growth may, however, be constrained by political uncertainty in the region, including difficulties in approving France’s 2026 budget and challenges facing the German government. Long-term structural hurdles also persist, such as rapid population ageing, weak competitiveness, slow productivity growth, and low investment levels.
The fastest-growing economy in the region is Spain. GDP growth in France was surprisingly strong in the third quarter. Germany’s economy stagnated in the third quarter of this year, and 2025 could be yet another lost year as the country awaits the effects of economic stimulus. The Eurozone growth is expected to reach 1.4% this year and 1.2% next year.
China is on track to meet its growth target this year and is focusing both on industrial development and on stimulating household consumption. It has successfully reoriented its exports by redirecting trade toward other markets, while exports to the United States have fallen by around 30% compared with the previous year. However, without additional fiscal support, growth may slow in 2026 and 2027.
Lithuania maintains its leading position in the Baltics, while Latvia’s growth forecast has been revised upward
In recent years, growth rates in the Baltic states have diverged, with Lithuania’s economic expansion clearly outpacing that of Estonia and Latvia. This is largely driven by stronger domestic demand — primarily household consumption — as well as solid export growth, particularly in the services sector. Lithuania’s economy is expected to grow by 2.5% this year and accelerate to 3.2% next year.
Economic recovery is also expected to strengthen in Latvia and Estonia, supported by consumption and investment, while growth in key Nordic export markets is set to improve (although Finland will continue to see only moderate growth, which affects Estonia). Latvia’s growth is expected to gain momentum in the second half of the year, prompting an upward revision of the full-year forecast to 1.5%. Next year, as household confidence improves, consumption is expected to make a larger contribution to growth, resulting in a moderate acceleration to 1.9%. Estonia’s economy is also gradually recovering, with growth of 0.7% expected this year and an acceleration to 2.5% next year. However, although increased defence spending supports growth, it also adds to the budget deficit and government debt.
Oil prices are not rising dramatically; the situation is different for refined oil products
In 2026, oil supply is expected to be abundant, provided there are no unexpected supply disruptions. OPEC+ is controlling output to keep oil prices at levels that allow the cartel to regain market share, while also seeking to avoid a sharp drop in prices. The five-year agreement price has remained stable at around USD 68 per barrel (Brent) over the past three to four years. As Ukraine has become more effective at destroying Russian oil refineries, the main price risk increasingly relates to refined oil products.
Although crude oil is widely available, refined products such as diesel, petrol, and jet fuel may be relatively expensive. We expect Brent to average around USD 65 per barrel over the forecast horizon, while diesel, for example, may carry a premium of around USD 30 per barrel over Brent.
The outlook for natural gas prices before winter is more uncertain. Given the relatively low storage levels in Europe, a cold winter could push prices higher. However, a significant increase in supply is expected in 2026 and 2027. As a result, any winter-driven rise in natural gas prices is likely to be limited both geographically and in duration.
An intensified “tariff war,” disruptions in trade or transport chains, or rising energy prices may cause higher inflation and weaker growth. One of the reasons why economic activity has been sluggish in many places is cautious household behaviour. Should the environment become more stable, confidence may rebound, and demand may rise. Growth would then be faster and stronger. The same is true for the substantial multiplier effects that Europe’s defence and infrastructure spending may generate.
