Macroeconomic Focus – February 2026

On February 20, the US Supreme Court struck down a large share of the tariff increases introduced in 2025, ruling that the law did not give the administration the authority to impose such measures. Donald Trump quickly responded by turning to a different legal mechanism to introduce a global tariff of 10%, with the option to raise it to 15%. The measure cannot remain in effect for more than 150 days without congressional approval. The question of reimbursing the amounts improperly collected since 2025 remains unresolved. As a result, the administration has lost its ability to take swift, forceful action on tariffs, even though other legal tools remain available – leaving businesses and investors in a climate of uncertainty. From a macroeconomic standpoint, global tariffs of 15% would not fundamentally change the overall picture.

Fourth‑quarter 2025 growth came in below expectations at +1.4%, down from +4.4% in the third quarter, largely due to the government shutdown, which weighed on public spending. This effect should reverse in the first quarter of 2026. Private demand has held up better at +2.4%, supported by AI‑related investment. By contrast, household consumption is weakening as income growth moderates and inflation remains high. In the labor market, January job creation far exceeded expectations, with +172,000 new private‑sector jobs. However, most of the gains came from the healthcare sector, and historical data has been revised significantly downward. The good news is that the slowdown in hiring has not been accompanied by an increase in layoffs.

Against this backdrop, markets expect the Fed to keep rates unchanged until the end of Chair Powell’s term in May 2026, followed by two rate cuts in the second half of the year. Donald Trump’s nomination of Kevin Warsh as his successor has been fairly well received. A former Fed governor under George W. Bush, he is seen as a more conventional choice than other candidates whose names had been circulating and who could have posed a greater threat to the Fed’s independence. His nomination still requires Senate confirmation.

The eurozone ended 2025 on a positive note. GDP growth picked up in the fourth quarter to an annualized +1.3%, helped by better results in Germany, Italy, and Spain. In France, however, growth fell short after a strong third quarter, with business investment losing momentum. While the adoption of the budget has given companies a bit more clarity, the tax environment remains challenging. In contrast, Germany’s fiscal stimulus seems to be gaining traction, reflected in strong growth in industrial orders in November and December.

The European economy continues to be driven mainly by domestic demand, and recent data on household consumption is encouraging: retail sales are trending higher and the unemployment rate fell to 6.2% in December, its lowest level on record. PMIs point to further improvement in February, with the eurozone composite index rising to 51.9, supported by a return to growth in German manufacturing. Inflation reached 1.7% year‑on‑year in January, below the ECB’s December 2025 projections. Those forecasts assumed a weaker euro than today, which increases the risk of a downward revision.

Markets still expect the ECB to keep the deposit rate at 2.00%, but the central bank could cut further if the economy underperforms. There have also been rumors that Christine Lagarde could leave before her term ends in 2027, potentially giving Emmanuel Macron a chance to influence the choice of her successor ahead of the French presidential election. But the practical impact would be limited. The appointment process does not allow France to impose or veto a candidate on its own, and an ECB president who is politically aligned with a national government would still have only one vote among the 21 members of the Governing Council.

Growth slowed again in the fourth quarter to +4.5% year‑on‑year, but this pace is still enough to meet the government’s 5% target for 2025. The target for 2026 will be announced in March during the annual session of Parliament, which will also unveil the 2026–2030 five‑year plan. The breakdown of GDP shows an increasingly uneven economy. On the demand side, domestic spending continues to drag on growth, while the contribution from net exports remains steady. On the supply side, some “new economy” sectors, such as IT, are expanding at double‑digit rates, while more traditional areas like real estate continue to shrink.

The December numbers reinforce this picture: retail sales and investment slowed further, while industrial production remained strong, supported by solid export activity. With imports essentially flat, the trade surplus reached a record high in 2025. Early‑year surveys paint a mixed picture: the official PMI slipped back below 50 in January, while the private‑sector PMI edged up, reflecting its greater exposure to export‑oriented firms. Consumer confidence is recovering slightly but remains very weak, weighed down by the ongoing downturn in the real estate market.

At a more structural level, 2025 population data confirm the demographic decline. The population fell for the fourth consecutive year to 1.405 billion, with births dropping to 7.9 million – a historic low. This trend is limiting the economy’s long‑term growth potential and is pushing authorities to accelerate technological innovation – robotics, AI, and other productivity‑enhancing sectors – which is likely to feature prominently in the upcoming five‑year plan.