Global GDP Themes and Forecasts

Manufacturing is providing a meaningful boost to the US economy. After a year of largely flat levels of hiring and firing, the labor market may be starting to strengthen. We expect 2.0% real GDP in the US. Consensus earnings estimates for 2026 and 2027 have moved up sharply. Core PCE has risen to 3.2%, and supply bottlenecks are emerging around energy and AI-related investment. If the unemployment rate declines, the Fed’s stance could shift from steady to increasing concern about inflation. We see a Fed rate hike as unlikely, but many global central banks remain in tightening mode.

Strong risk appetite can help drive a weaker US dollar relative to some of the higher-yielding emerging market currencies. However, we are watching the extent to which energy rationing and demand destruction spreads. Rationing is starting to be more pronounced in India where the government’s latest measures include work-from-home policies, and a plea to stop buying gold and reduce foreign air travel. The rupee is weakening. In China, we expect credit conditions to improve and the economy to recover gradually, with policymakers maintaining a steady course amid global uncertainty. Growth should reach 4.5% to 5.0% in 2026. The country has been relatively successful in shielding itself from energy disruptions. On the other hand, Europe is more exposed to energy/import shock. We continue to look for credit repair across the region. The European Central Bank could reluctantly hike rates 50 basis points as it targets energy-spiked headline inflation.

USA & CANADA

THE GROWTH TREND MAY DECLINE, BUT NOT TO A RECESSIONARY LEVEL

• In the US, we expect below-trend growth in 2026, but not a recession. Positive wealth effects and solid aggregate consumer consumption have been supporting demand.
• Substantial capital expenditure tied to AI, data centers and related digital infrastructure are likely to support productivity gains and longer-term economic momentum.
• We believe there is a very high bar set for Federal Reserve rate hikes compared to cuts.
• Canada reported higher inflation again in April, fostered by higher gas prices resulting from global oil flows being interrupted. That said, more muted core price measures that exclude volatile categories, were more favorable. Market pricing suggests two rate hikes by year-end, which we find far too aggressive.

UNITED KINGDOM

POLITICS COULD POSE DOWNSIDE RISK FOR UK GILTS AND THE POUND

• Supply shocks are showing up in United Kingdom (UK) data, raising concerns that a protracted disruption may tip the economy into a downturn.
• The country’s political situation is in turmoil, with a significant chance of a major policy pivot should Prime Minister Starmer be replaced. This could be a source of volatility across the investment landscape and could also precipitate opportunities.

EURO AREA

ENERGY PRICES LIKELY TO DICTATE THE MACRO ENVIRONMENT

• Europe is very vulnerable to energy price shocks and supply disruptions should shipping through the Strait of Hormuz remain impeded.
• Energy prices pose a significant downside risk, but could also lead to greater fiscal support as Europe looks to address supply-side vulnerabilities stemming from the crisis.

LATIN AMERICA

LATIN AMERICA STANDS OUT AS A RELATIVE BENEFICIARY IN THE CURRENT ENVIRONMENT

• Latin America appears relatively well-positioned in a prolonged geopolitical energy shock and higher commodity price environment, given its geographic distance from conflict zones and generally positive exposure to energy and commodity exports.
• Brazil continues to stand out with strong carry and a favorable oil export profile, supporting both foreign exchange and local markets despite global uncertainty.
• Mexico is likely to trade in line with global risk sentiment, as easing monetary policy and lower carry are balanced by improving fiscal dynamics and resilient US linkages.
• Colombia benefits from a supportive oil backdrop, high carry and a gradually improving political narrative, though election uncertainty remains elevated.

ASIA PACIFIC

ASIA PRESENTS A MIXED OUTLOOK, DICTATED BY ENERGY DEPENDENCY AND FISCAL CAPACITY

• The Middle East conflict is negative for most Asian countries given their net energy importer status with the exception of a few, such as Australia, Malaysia and Indonesia.
• The AI-driven chip exports “upcycle” shows no signs of disruption or slowdown yet and is providing a growth cushion, mostly for North Asia economies.
• To help mitigate elevated energy prices, some governments have adopted consumer support measures and energy conservation policies—at a fiscal cost.
• Regional central banks are likely to hike rates to address inflation surges in countries with more liberalized fuel pricing regimes and confront inflation pass-through from weak foreign exchange rates.

JAPAN

ENERGY STRUCTURE IN JAPAN MAKES IT VULNERABLE TO MIDDLE EAST INSTABILITY

• Japan imports nearly 100% of its crude oil, with roughly 95% sourced directly from the Middle East.
• Japan does hold substantial oil reserves, equivalent to 250 days of consumption, which could provide a significant buffer against short-term physical supply cutoffs.
• From a macroeconomic perspective, the energy situation exerts stagflationary pressure on Japan, simultaneously weighing on growth while pushing up prices.

CHINA

ENERGY PRICES MOVE THE COUNTRY OUT OF DEFLATION

• Growth has been holding up relatively well with the help of continued export growth
• China’s energy exposure to the Middle East is significant, but mitigated by large strategic reserves, heavy domestic coal use and rapid expansion in renewables, which reduces China’s macro sensitivity to oil shocks relative to regional peers.

CEEMEAⁱ

COUNTRY DEVELOPMENTS AGAINST A BACKDROP OF WAR

• Broadly, we expect proximity to the US-Iran war and reliance on imported energy to tighten financial conditions and weigh on regional growth.
• In Hungary, the TISZA Party’s super majority victory will allow for the constitutional changes necessary to unlock €18bn in European Union funds and spur the start of a structural reform narrative for a country that has lagged the region in growth and foreign direct investment in recent years.
• South Africa’s terms-of-trade tailwind has reversed in the face of the surge in oil, although precious metals and a still-resilient domestic reform and politics story are important positives.
• Turkish macro adjustment has taken a setback in the face of twin challenges from the Iran war and resurgent domestic political strains.
• Among the countries in the Gulf Cooperation Councilⁱⁱ, high‑frequency indicators point to a sharp slowdown in activity, though not a collapse. Saudi Arabia is the only country to have released Q1 GDP since the onset of the war; despite the conflict affecting only one month of data, it showed a notable decline in non‑oil GDP. At the same time, stronger energy prices have helped cushion production declines in both Saudi Arabia and the United Arab Emirates.

Endnotes

ⁱ CEEMEA=Central and Eastern Europe, Middle East and Africa

ⁱⁱ Gulf Cooperation Council countries include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Disclosure

Views as of June 4, 2026. This marketing communication is provided for informational use only and should not be considered investment advice. The forecasted views and opinions expressed reflect those of the Loomis Sayles Macro Strategies Group and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. All statements are made as of the date indicated and are subject to change at any time without notice. Descriptions assume normal market conditions. Numbers are approximate. Information, including that obtained from outside sources, is believed to be correct, but Loomis Sayles cannot guarantee its accuracy.

Market conditions are extremely fluid and change frequently.

Commodity, interest and derivative trading involves substantial risk of loss. This is not an offer of, or a solicitation of an offer for, any investment strategy or product.

Any investment that has the possibility for profits also has the possibility of losses, including the loss of principal.

Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.

This material cannot be copied, reproduced or redistributed without authorization. This information is subject to change at any time without notice.

8947187.1.1