South Africa’s long-stagnant economy could finally move onto a firmer footing by 2026, according to Moody’s newly released Global Macro Outlook 2026/27.
After a decade of averaging less than 1% real GDP growth, Moody’s says momentum may gradually improve as reforms in logistics, energy, and regulation start to ease chronic constraints. The ratings agency forecasts real GDP growth rising to about 1.6% in 2026 and approaching 2% by 2027, supported by easier monetary conditions as inflation moderates.
For an economy marked by structural unemployment and weak investment, Moody’s assessment points to cautious but meaningful upside potential.
Globally, Moody’s expects growth to stabilise at about 2.5% in 2026/27, although performance is diverging between slower-growing advanced economies and comparatively resilient emerging markets.
The outlook also examines how shifts in AI adoption, labour markets, and monetary policy will influence global demand patterns and financial stability.
“For investors, 2026 will be a year of change and opportunity, from shifting policy and evolving finance to digital disruption and costly natural disasters, the global credit landscape is being redefined,” said Philip Lotter, managing director and head of global ratings and research at Moody’s Ratings.
Moody’s identifies four themes shaping the next two years of the global cycle:
- US growth stays solid but labour momentum fades.
- China relies on exports and targeted stimulus as domestic demand softens.
- Monetary policy paths diverge, raising cross-market volatility risks.
- Geopolitics and rapid technological disruption keep uncertainty elevated.
US growth stays solid but labour momentum fades
Moody’s says the US economy remains resilient but is showing signs of softening momentum. Hiring intentions are weakening, real income growth is slowing, and the economy appears late in its cycle, leading Moody’s to note that it would “normally expect growth to weaken”.
Real GDP grew at an annualised 1.6% in the first half of 2025, while gross domestic purchases increased by 2.2%. Although official Q4 data was delayed by a federal government shutdown, Moody’s cites indicators showing continued moderate expansion driven by consumer spending and robust AI-related investment.
The agency expects the shutdown’s effect on Q4 growth to be modest and temporary. It forecasts US growth returning to about 2% – the economy’s estimated potential – supported by healthier balance sheets, steady employment, and expected rate cuts.
Moody’s has raised US GDP projections to 2% in 2025 and 1.8% in 2026, up from 1.5%.
However, Moody’s cautions that solid headline growth masks fragility. Higher-income households continue to spend, benefiting from asset-price inflation, but lower-income consumers remain exposed to tariff-related price pressures.
Job creation has slowed, labour-force inflows have weakened because of immigration restrictions and an ageing workforce, and low quit rates reflect declining worker confidence.
Moody’s describes the overall picture as “a stable yet tenuous” labour-market landscape.
China relies on exports and targeted stimulus as domestic demand softens
Moody’s reports that although China’s headline growth remains firm, underlying domestic demand remains weak. GDP is expected to grow by 5% in 2025 before moderating to 4.5% in 2026 and 4.2% in 2027.
Beijing’s ambition to reach “the per capita GDP of a moderately developed country by 2035” implies sustained growth near 4.5%, which Moody’s says could prompt continued fiscal and monetary support.
Retail sales remain steady – partly because of government-backed trade-in programmes – but Moody’s warns that the fundamentals are fragile. Social financing is expanding mainly through government borrowing, while corporate and household credit growth continues to slow.
Fixed investment is contracting as subdued corporate lending weighs on activity.
Exports remain a critical driver. Reduced trade with the US is being offset through stronger shipments to other markets, reflecting both “genuine segmentation of the global trading regime” and increased trans-shipment.
With high savings, large industrial capacity, and still-weak domestic consumption, Moody’s expects China to rely heavily on external demand for the foreseeable future.
Beijing’s “anti-involution” policy – aimed at reducing excess capacity and unfair pricing in sectors such as electric vehicles, solar, batteries, steel, and coal – could improve long-term growth quality, Moody’s says, but it will also soften output and put pressure on the labour market in the short term. If domestic demand remains subdued, consolidation could deepen the drag on employment and activity.
Following the Fourth Plenum of the Central Committee of the Communist Party of China, the 15th five-year plan is expected to focus on accelerating innovation in strategic technologies and strengthening domestic demand through reforms to income distribution and social safety nets. Policymakers are also likely to prioritise supply-chain security over broad export diversification amid persistent geopolitical tensions.
Monetary policy paths diverge, raising volatility risks
Moody’s notes that major central banks are heading in different directions as inflation and growth patterns diverge. In the US, the Federal Open Market Committee cut rates by 25 basis points in October to 3.75%–4%.
The decision saw opposing dissents – one favouring a larger cut, another preferring no change – which Moody’s says illustrates the difficulty of balancing slowing job creation against inflation risk. It expects further easing, projecting the federal funds rate to fall to 3%–3.25% over upcoming meetings.
The European Central Bank has likely ended its easing cycle as euro-area inflation approaches 2%, while the Bank of England is expected to move cautiously on cuts as it assesses persistent inflation and fiscal constraints. Japan continues its shift towards normalisation, with the policy rate expected to reach about 1%.
Among emerging G20 economies, China continues its “moderately loose” stance, India is on hold, Indonesia is likely to cut further, and Mexico, Brazil, and Turkey are easing cautiously.
Despite diverging policy paths, long-term yields across major advanced economies recently reached levels last seen in 2008. They have since moderated, but Moody’s says the earlier surge reflected rising investor concern about fiscal sustainability and political uncertainty.
Retirement funds and insurers are avoiding ultra-long bonds and favouring shorter rollovers, steepening the long end of the curve.
By contrast, yields in large emerging markets have remained relatively stable, supported by stronger inflation-targeting regimes, improved central-bank independence, and deeper domestic markets.
Moody’s expects advanced-economy yields to stabilise near current levels but warns that global markets remain “extraordinarily sensitive” to fiscal risks and geopolitical shocks.
Geopolitics and tech shocks keep uncertainty high
Moody’s warns that geopolitical flashpoints and stretched tech valuations are adding unpredictability to the global outlook.
Exceptionally high expectations for AI-driven earnings are fuelling a boom in US tech equities, but the agency cautions that the trend “carries seeds of financial instability”. Valuations in many tech segments are elevated, with rising leverage and distorted pricing increasing the risk of a correction.
A sharp reversal in tech valuations could trigger a broader US equity unwind – potentially larger than the early-2000s dotcom collapse, given deeper global exposure to US assets – and would likely weigh on investment and employment.
Geopolitical risks remain elevated, from China’s willingness to weaponize critical-mineral exports to tensions involving Iran and Israel, the fragile Gaza ceasefire, the Russia-Ukraine war, and disputes across south and east Asia. These rifts weaken co-operation on global tax, climate, and security frameworks and create uncertainty for trade and investment.
Rising populism and voter frustration in advanced economies are driving more inward-looking policy positions, with immigration emerging as a key pressure point. Moody’s warns that domestic fragmentation could undermine policy stability.
The agency also highlights macro-financial risks, including the possibility – not its base case – of an overly dovish US monetary pivot. A “low (potentially negative) real policy rate” combined with efforts to suppress long-term yields could weaken the dollar, raise inflation and unsettle bond markets.
Rapid advances in AI, quantum computing, and robotics could deliver strong productivity gains, but they could also disrupt labour markets and intensify fiscal pressures if not managed effectively.
“Widespread adoption of these innovations – especially through open-source platforms – could result in benefits across both advanced and emerging markets.
“However, these developments also carry risks. In particular, AI could render entire sectors and jobs obsolete, which could lead to higher long-term unemployment and associated economic and fiscal cost, if not actively managed,” Moody’s notes.
