The global economy is forecast to expand this year at the same rate as last year, which remains close to its long-term trend rate. In its latest report (January), the International Monetary Fund (IMF) is forecasting global growth to be 3.3% this year (0.2% above the IMF’s previous forecast, largely due to a solid 0.3% increase in estimated US growth) and 3.2% in 2027. In the IMF’s words, ‘headwinds from shifting trade policies are offset by tailwinds from surging investment related to technology, including artificial intelligence, more so in North America and Asia than in other regions, as well as fiscal and monetary support, broadly accommodative financial conditions and adaptability of the private sector’. Growth in the advanced economies is forecast to be 1.8% this year and 1.7% in 2026 but with risks still ‘tilted to the downside’.

In the case of the US, growth slowed in the December quarter, rising by 1.4% at an annualised rate, partly due to an extended shutdown during the quarter of federal government agencies. The IMF is now forecasting growth of 2.4% for the whole of 2026 and 2.0% for 2027, although the US administration is aiming for a higher rate of growth than this, with fiscal stimulus, reduced regulation and incentives for investment aimed at propelling growth going forward. Despite inflation remaining elevated (2.7% in December), the US central bank lowered interest rates again in December. Growth for the euro zone is forecast to remain weak (1.3% this year and 1.4% in 2027), while Japan is forecast to grow by only 0.7% this year and 0.6% next year.

The Australian economy grew by 0.4% in the September quarter and by 2.1% over the year. On a per capita basis, the economy did not grow over the quarter, expanded by only 0.4% over the year and actually contracted over the 3-year period. While the Reserve Bank (RBA) cut its official ‘cash rate’ 3 times in 2025 (to 3.60%), recent poor inflation data (with the RBA’s preferred measure of annual inflation, the ‘trimmed mean’ rate rising to 3.3% in December, above its target range of 2% to 3%), on 3 February it raised rates again (to 3.85%) to attempt to marginally slow economic activity. This is despite what is a broadly weak economy with support coming mainly from government spending and with little productivity growth.

Most share markets were on a broadly upwards trend from April last year after a strong 2024, mostly due to the assumption that interest rates would be trending downwards for some time, which has proved to be broadly accurate for most of the major economies. Over 2025, most major share markets rose strongly, while market movements over the first two months of 2026 included rises of 1% for the broad US market (S&P500), 10% for the UK, 3% for Germany, 5% for France, 17% for Japan, 5% for China and 6% for Australia, while the technology-focused US Nasdaq index fell 3% and India fell 5%.

Major sovereign bond markets have been volatile for some time, with yields (interest rates) rising and falling in line with the outlook for inflation. The US 10-year Treasury bond yield fell to a record low of 0.54% on 9 March 2020 during the pandemic but touched 5.0% in October 2023 before sliding down, then rising again. It was 3.96% on 27 February this year. Similarly, the Australian 10-year bond yield was 0.57% on 8 March 2020 but was 4.65% on 27 February this year. Bond markets could see yields range trade (and prices stay relatively stable) over coming months if growth remains soft and if inflation remains close to targets.

Fiducian’s diversified funds are currently above benchmark for international shares, slightly above benchmark for listed property and around benchmark for domestic shares. Exposure to bond markets is close to benchmark, while cash holdings have been lowered to below benchmark.

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