Trade, Tech, Green, Defense: One Battle After Another

If "tariff" was the defining word of 2025, with the Trump administration imposing tariffs on the global stage, "resilience" will emerge as the key term for 2026, as Jean-François Robin introduced in the Global Outlook 2026 webinar. Global economies have demonstrated relative fortitude in the face of trade wars, leading to upward revisions of forecasts, and this resilience is expected to continue into 2026.

Nonetheless, significant challenges await in 2026, reflecting the pivotal issues of the decade: AI, and the critical question of whether the anticipated transformation of our lifestyles and productivity gains will match the monumental investments made; Defense, as Europe organizes itself while the United States adopts a dual approach, withdrawing from NATO yet positioning itself as a mediator; and Energy, where access to abundant and affordable energy serves as the lifeblood in the race for AI dominance and sovereignty, all while the world must pursue its global decarbonization pace more vigorously than ever.

In a one-and-a-half-hour webinar, Jean-François Robin, Global Head and the experts from Natixis CIB Research deliver a comprehensive overview and insights into the upcoming year. Both English and French replays are available: tune in now !

The global economy has demonstrated resilience amid the trade war initiated in 2025, with the U.S. economy finally bearing the brunt of the imposed tariffs. The Trump administration has begun rolling back some tariffs, implicitly acknowledging their inflationary impact on domestic consumption, particularly for low-income Americans. Regardless of whether the courts will manage to strike down Trump's ability to implement emergency tariffs, it appears that the actual effective rates of approximately 13% have reached their peak.

However, consumer balance sheets remain strong, and financial conditions continue to ease. Growth is projected to be consistent in 2026, around 1.8%, similar to 2025. The Fed is expected to continue cutting rates to a terminal rate of 3% to support a labor market that is particularly under pressure, with the unemployment rate likely peaking at 4.7% by the end of Q1.

The next major date to watch is January 21st, when the courts will decide whether the president can fire Fed policymakers and take personnel control over the central bank. Every meeting will be under intense scrutiny. Nevertheless, numerous institutional safeguards are in place, and significant efforts would be required to undermine the Fed's independence.

Turning to Latin America, which was one of the most heavily targeted by tariffs, around 10%, it has weathered the storm quite well. Growth is projected to reach 2% in both 2025 and 2026. The effective tariffs proved lower - 30% for Brazil, for instance, compared to the initially 50% announced. The country, where only 2% of GDP relies on the U.S., has managed to diversify its trade to other regions, notably China.

Mexico is expected to record growth of 1% after a lackluster 0.5% year in 2025. As for Venezuela, which holds the world's largest proven oil reserves at 300 billion barrels, It is difficult to predict whether the U.S. will intervene, but in either case, divisions among the two major U.S. political parties seem inevitable.

China emerged as the winner of the trade war in 2025, demonstrating resilience that exceeded many analysts' expectations. This is primarily due to exports to Europe and the rest of Asia. The country will continue to rely on exports in 2026, however, amid rising geopolitical tensions, sustaining such export levels may prove difficult. Given its structural production overcapacity, China is likely to keep lowering prices to enhance exports. A shift in its economic model should not be expected.

Domestic consumption and investment indeed remain weak points for China. A key indicator, retail sales, fell to 2.9% from 4% in May, marking a significant decline. While China aims to double its GDP over the next 10 years, it will certainly take measures to boost domestic consumption, even though this goal ranks only as the third priority, behind production and innovation, in its 5-year plan.

The rest of Asia also demonstrated significant resilience, particularly India, which, despite facing 50% tariffs and a weakness in its exports (1.8% of global exports compared to its 4% share in the global economy), is achieving an impressive growth rate of 7.8%. The depreciation of the rupee has served as a key shock absorber for tariffs. However, India is not ready to be the new China, representing only 3% of global manufacturing compared to China's 30%.

Taiwan, South Korea, Southeast Asia, Malaysia, Vietnam and other Asian countries certainly benefited from a base effect following a lackluster performance in 2024. Their resilience has also relied on exports, especially as suppliers of tech components, particularly to the United States, which remains a key growth driver, along with China. For instance, South Korea's semiconductor exports increased by 38%. However, export conditions should be worsening in 2026.

Europe also weathered the trade war well, achieving a growth rate of 1.4% in 2025 and an expected 1.2% next year, driven by Spain. Exports to the United States have increased despite average tariffs rising from 2% to 10%, influenced by the production structure, while exports to China have collapsed.

France is expected to end 2025 with a growth rate of 0.9%, driven by the aerospace sector as well as aircraft, electrical equipment, tourism, and luxury goods. Growth is projected to slightly improve in 2026 to 1%. However, this remains slightly below its potential of 1.1%, with political uncertainty costing between 0.2 and 0.3 percentage points of GDP. Public debt is forecasted to reach 120% of GDP by 2030, and given the difficulties in implementing structural reforms, Moody's is likely to align its Aa- rating with S&P’s A+ and Fitch’ A1.

Germany is expected to register positive growth in 2025 and 1.3% in 2026 after two years of contraction, positioning itself as a renewed engine for Europe. Its public infrastructure support plan (€500 billion), combined with increased defense efforts and tax incentives for the private sector, as well as the raise in the minimum wage, should help boost domestic demand.

These two major economies in the Eurozone will be the first to benefit from the massive €800 billion European defense plan - €150 billion in guaranteed loans, €650 billion in investments financed by the member states’ budgets. The overall EU defense spending needs to grow by an additional €250 billion (to €630 billion) to meet the new NATO’s target of 3.5% of GDP. This extensive effort will barely elevate Europe's military budget to that of China and only to half of the U.S. budget. Thus, while Europe seeks peace, it prepares for war and is organizing itself to maintain sovereignty across multiple fronts, including energy sovereignty.

By supporting the electrification of its economy, Europe pursues a threefold objective: sovereignty, industrial competitiveness, and decarbonization. The investment effort and deployment of new solar capacities are significant. The legislative framework facilitating bilateral electricity contracts between low-carbon electricity producers - renewable and nuclear - and industries should be continued. The challenge for 2026 will be to expand the carbon border adjustment mechanism (a derivative of the carbon tax) to include new industrial sectors and also to incorporate carbon emissions associated with electricity consumption in production processes.

Sovereignty also entails a certain autonomy in raw materials, as outlined in the Critical Materials Act established in 2023, through which Europe aims to meet 15% of its consumption and 25% of its refining needs by 2030. However, the approximately 15-year cycle required to reopen factories and retrain skills is lengthy, and the funds allocated to date are insufficient compared to the $35 billion pledged by the United States, which has also acquired assets from Europe-friendly countries. To combat China's dumping practices, long-term off-take agreements with producers will be essential to ensure the profitability of their investments.

In light of these power dynamics and various (re)positionings - some more successful than others - economists have outlined the major risk areas emerging for 2026, a year rich in elections, including snap elections in France, Romania, Bulgaria, Hungary, and also in Russia, where the outcome is quite predictable.

In 2026, the primary concern for investors, as revealed in our November 2025 survey, is the potential explosion of the tech bubble, cited by 57% of respondents. A panel was dedicated to generative AI: will the $400 billion invested translate into productivity gains? What will be the impact on the job market? Who is leading the charge?

Regarding credit risks, the favorable technical factors of 2025, supported by record fundraising flows of €60bn, are expected to weaken, when a 10% increase in €-denominated corporate issuances is anticipated. Valuations appear stretched, particularly in relation to default rates, which could influence the direction of spreads.

Private debt, which total outstanding has increased by an average of 14% per year over the past decade, shows signs of credit ratios deterioration, with higher leverage and an increasing number of covenant-lite structures. However, the default rate remains quite low. The risk of spillover effects on U.S. regional banks is likely to be relatively limited, as this remains a small market. Nevertheless, it could impact confidence and lead to withdrawals.

Continuing with the banking sector, starting with France, the fundamentals of French banks are solid; they have primarily been penalized by a reallocation towards Italian and Spanish banks. In the broader context of banking M&A, especially in highly fragmented countries like Italy, the main risk is primarily one of execution.

Finally, turning to oil and gas, would an end to the conflict in Ukraine impact prices? Russia has maintained its oil exports to India and China, so we would not expect to see a flood of Russian supply hitting the market. However, a removal of U.S. sanctions would remove some risk premium and see price a few dollars below our $62/bbl average forecast. For European gas markets, we hold a bearish view as a base-case, and peace would likely see additional Russian LNG exports on the market. In this case we would expect TTF to trend near €22/MWh, compared to €28/MWh in our base case.

Finance debt to GDP is rising everywhere post-COVID, dedollarization, rush to gold in a tense context…. Economists have then discussed the impact of the geopolitical landscape on the markets and how it will influence various asset classes in 2026 under the theme of budget dominance.