Economic Expansion Rates

📊 The US economy continues to expand — but the foundations of that growth are shifting. 📉 Real GDP growth slowed sharply to 0.7% (annualized) in Q4, bringing full-year 2025 growth to 2.1% despite an extraordinary combination of supply shocks: trade policy upheaval, rapid AI adoption, and a historic collapse in immigration. Much of the late-year slowdown reflected the longest government shutdown in US history, but private demand also softened modestly. 🛍️ Consumers are still spending, but they are becoming far more selective. Spending rose 0.4% m/m in January, yet real consumption increased just 0.1%, with households rotating away from tariff-impacted and higher-priced goods. Outlays are increasingly concentrated in “must-do” services such as housing, utilities, healthcare and insurance, while discretionary categories like travel, restaurants and leisure are seemingly losing momentum. 💰 The income foundation supporting consumption is fragile. Real #consumer spending is growing 2.4% y/y, but real disposable income is expanding at a slower 1.8% pace. This gap suggests resilience in consumption is increasingly sustained through tighter budgeting and spending selectivity rather than stronger income growth. ⚙️ Meanwhile, #productivity — not hiring — is driving the expansion. The economy added only 116,000 jobs in 2025, yet output continued to expand as firms focused on efficiency in a high-cost, high-interest-rate environment. Productivity has grown at a 2.2% annualized pace since 2019, supported by operational discipline and increasingly by #AI investment. 📈 Inflation pressures also remain stubborn. Core PCE #inflation accelerated to 3.1% y/y in January, and short-term momentum suggests underlying price pressures were already firm before the recent energy shock tied to the #MiddleEast conflict. ⚠️ Looking ahead, the US economy faces a new set of crosscurrents. Higher energy prices, tighter financial conditions and elevated geopolitical uncertainty are likely to push inflation temporarily higher this spring while weighing on growth. The expansion is continuing — but it is becoming more uneven, more selective and more sensitive to supply shocks. We have revised our #GDP growth forecast to 2.0% in 2026. EY-Parthenon EY Lydia Boussour

340%: How China Reshaped Global Productivity While Europe Slept. When economists talk about future global growth, one parameter cuts through all the noise: labour productivity. And the latest deep-dive from the International Labour Organization (ILO) makes one thing unmistakably clear: the world’s productivity map has been turned upside down over the past 20 years [https://lnkd.in/dM-N3wsM]. #Asia has exploded forward. #Europe is stagnating. Oil-based economies are sliding backwards. The scale of transformation is staggering. No country in modern economic history has accomplished what #China achieved between 2005 and 2025. Its GDP per hour worked jumped from $4.5 to $19.8, a 4.4-fold increase and 340% productivity growth, outpacing every other major economy by a double-digit margin. Asia as a whole delivered unprecedented results. #India increased productivity by 149%, and #Indonesia, #Thailand, #SouthKorea, and #Taiwan all recorded growth of more than 70%. The consequence is unmistakable: the productivity gap between Asia and the West is shrinking at a pace once considered impossible. In 2005, Norway’s productivity exceeded China’s by a factor of 24 ($108.6/hour vs. $4.5). By 2025, the ratio fell to 6 to 1. Yet growth rates tell only half the story. Absolute levels in many emerging Asian economies remain modest — often $18–$22 per hour. This means Asia still possesses vast room for expansion. Why is Asia winning? Three drivers stand out: (1) Massive investment — often 30–40% of GDP — into fixed assets, infrastructure, and modern production. (2) Leapfrogging old technologies by deploying new equipment without legacy constraints. (3) Integration into global value chains and the influx of capital and technology. In short, Asia industrialised smarter, faster, and at scale. Europe tells the opposite story. Productivity growth in major European Union economies over 20 years is embarrassingly low: +10% in the #UK, +14% in #France and #Norway, and a mere +1.8% in #Italy. Demographic decline, chronically low post-2008 investment, high taxation, labour rigidities, surging energy costs, and regulatory overload have created a structural slowdown. The one exception — and the global outlier — is Ireland. With $139.1/hour in labour productivity (the highest in the world, 1.7× the #US), and 102% growth over 20 years. While its figures are inflated by multinational accounting flows, the strategy remains effective for a small open economy. At the bottom sit the oil economies. #SaudiArabia (-34%) and #UAE (-23%) posted the world’s only negative productivity trajectories, proving the limits of resource-based development models. The global message is brutal and obvious: Asia is rising. Europe is declining. Oil economies are failing. And the middle-income trap will spare no one without massive investment in education, science, and high-tech industries.

Sri Lanka's private sector credit grew 25.2% in 2025. The credit-to-GDP ratio is still below pre-crisis levels. Both facts are true at the same time. Credit extended by Commercial Banks (CBs) and Finance Companies (FCs) reached LKR 2,845 Bn in 2025, marking a sharp acceleration. For CBs, growth rose to 25.2%, from 10.7% in 2024, indicating a clear shift in credit momentum. This acceleration was notable since June, with monthly disbursements exceeding LKR 200 Bn for six consecutive months. According to Central Bank of Sri Lanka, the expansion was primarily driven by: • strengthening economic activity, and • increased vehicle imports following the relaxation of import restrictions. FCs recorded an even stronger surge, with disbursements growing 49.3% to LKR 789 Bn, largely linked to vehicle financing. At first glance, such rapid credit growth appear concerning. However, context matters. Despite the acceleration, the private sector credit-to-GDP ratio stood at 29.8% in 3Q 2025, still below pre-crisis levels. In other words, credit expansion is occurring from a compressed base rather than an already overheated system. This distinction matters. Credit growth at affordable rates acts as a transmission channel for economic recovery: • increased funding for business expansion, • which generates employment and income, and • ultimately feeds into consumption and economic activity. The current phase appears less like excess leverage and more like financial intermediation normalising after a credit contraction. The key risk is not the growth rate. It's whether lending begins to outpace productivity and income growth - a signal the aggregate data does not yet reveal. With vehicle import volumes set to decline in 2026, credit growth will slow. What matters then is composition: whether lending shifts toward productive sectors or remains concentrated in import-linked consumption. The trajectory of private sector credit is now one of the clearest signals of where Sri Lanka's recovery is headed.

#Ireland frequently outpaces other advanced economies in Gross Domestic Product (#GDP) growth, posting a surging 12.3% growth rate in 2025. This massive growth makes it the fastest-growing economy in Europe. However, economists widely recognize that Ireland's high headline GDP numbers are heavily inflated by multi-national corporate activities, a phenomenon famously dubbed "leprechaun economics". The Disconnect in Irish GDP #Multinational #Profit Shifting: Tech and pharmaceutical giants legally route global profits through Irish subsidiaries. Distorted #Metric: Reported GDP often tracks intellectual property assets rather than domestic productivity. Alternative Metric: The Central Statistics Office uses Modified Domestic Demand (MDD) to measure the true domestic economy. #Domestic #Realities: While 2025 GDP surged by over 12%, the core domestic economy (MDD) grew by a more modest 5%. Why Ireland's Growth Accelerates Faster #Corporate #Tax Incentives: A highly attractive 12.5% corporate tax rate draws major US tech and life science firms. #Tariff Frontloading: In 2025, US firms aggressively stockpiled Irish pharmaceutical exports to beat anticipated US trade tariffs. High Value #Sectors: Strict focus on high-margin fields including ICT, financial services, and biopharmaceuticals. #Workforce Edge: Massive capital investment in #STEM education provides an elite, highly qualified talent pool. Volatility and the 2026 Outlook Because #Ireland's #GDP is dependent on global trade dynamics, it suffers from intense economic volatility. Following the massive export boom of 2025, the economy hit a major technical base effect correction. Preliminary data shows Ireland's GDP contracted by 2% quarter-on-quarter in Q1 2026 due to a sudden slowdown in the multinational industrial sector.

US GDP Accelerates to Fastest Pace in Two Years and Surges Past Expectations This morning, the U.S. Bureau of Economic Analysis released its initial estimate of third-quarter economic growth, showing the U.S. economy expanded at its fastest pace in two years and significantly outperformed expectations. The report provides the first complete snapshot of economic activity for the quarter after earlier releases were delayed by the recent government shutdown. According to the BEA, real gross domestic product increased at a 4.3 percent annual rate in the third quarter, well above consensus forecasts near 3.3 percent and faster than the 3.8 percent pace recorded in the second quarter. GDP measures the inflation-adjusted value of all goods and services produced in the economy and is the broadest indicator of overall economic activity. The composition of growth helps explain the upside surprise. Consumer spending remained the primary engine, reflecting continued household demand for both goods and services. Exports and government spending also contributed positively. These gains were partly offset by a decline in private investment, signaling that businesses remain cautious even as overall output accelerates. Imports fell during the quarter, which mechanically added to headline GDP growth. The report also included updated inflation measures that add important context. The personal consumption expenditures price index excluding food and energy, the Federal Reserve’s preferred gauge of underlying inflation, rose at a 2.9 percent annual rate in the third quarter, up from 2.6 percent previously. Overall PCE inflation increased to 2.8 percent, suggesting that progress on inflation has become less consistent even as growth strengthens. Taken together, the message is clear. Economic growth surprised meaningfully to the upside, demonstrating resilience and momentum, while underlying inflation pressures firmed rather than eased. Growth is proving stronger than expected, but inflation is not yet fully cooperating. This combination matters for monetary policy. Faster-than-anticipated GDP growth reduces the urgency for the Federal Reserve to support the economy through rate cuts, while firmer core inflation reinforces the case for patience. Even as some segments of the economy show signs of cooling, this data argues against a rapid shift toward easier policy. For households, the signal is mixed. Strong growth supports employment and income, helping sustain spending. At the same time, persistent inflation continues to strain affordability and weigh on confidence. Consumers remain active, but increasingly selective, adjusting behavior rather than pulling back outright. Havas Edge tracks GDP closely because it anchors expectations for policy, confidence, and consumer behavior.

Over the past several days, three separate data releases are worth considering together. • Nonfarm business productivity increased at a 4.9% annualized rate in Q3 2025, while unit labor costs fell 1.9%. (see my earlier post: https://lnkd.in/guzpCekX) • Analysis from the Federal Reserve Bank of St. Louis estimates that AI-linked investment categories contributed approximately 0.97 percentage points to real GDP growth through the first three quarters of 2025, accounting for nearly 40% of total growth over that period. (see my post from last week: https://lnkd.in/g-XjtSjV) • Inflation continued to moderate, with CPI rising 2.7% year-over-year and core CPI at 2.6%. (In the news today.) Individually, each of these data points has multiple interpretations. Taken together, they suggest something more structural may be occurring. In macroeconomic terms, a sustained technology diffusion should raise potential output (meaning the economy’s capacity to produce goods and services without generating inflationary pressure). If potential output is rising, we would expect to see: • Higher output per hour (productivity gains) • Capital deepening (meaning increased investment in productivity-enhancing equipment, software, and infrastructure) • A relaxation of the traditional Phillips curve trade-off (meaning growth and wage gains can occur with less inflation pressure). Recent data are directionally consistent with that pattern. A near-5% productivity surge alongside declining unit labor costs suggests improved efficiency. AI-related capital formation accounting for nearly 40% of recent GDP growth is a textbook example of capital deepening. And inflation in the mid-2% range indicates that price pressures are not accelerating despite continued expansion. This does not prove AI is the sole driver, nor does it imply uniform gains across sectors. But when improvements show up simultaneously in productivity, investment composition, and price dynamics, it raises the possibility that productive capacity itself is expanding. If so, the relevant question is no longer whether AI is “interesting,” but whether it is beginning to shift the economy’s underlying growth frontier. We may be observing the early stages of that shift.  #AI #Economics #Productivity

Investors have learned to fear a cooling labor market but it might be time to retire that habit. The latest data suggest slower hiring is undermining neither growth nor profits. Rather, the numbers reflect an economy generating more output with fewer workers — a productivity-driven expansion that is unusual by historical standards but nonetheless bullish for asset prices. Through 2025, the labor market faltered and aggregate hours worked flattened. Typically, that combination would foreshadow a slowing economy, as many on Wall Street predicted repeatedly last year. Yet this time real GDP continued to accelerate, clocking in at 4.3% in the third quarter. Productivity, meanwhile, surged at a nearly 5% annualized rate. This presents a particularly juicy set up for corporate America: • Unit labor costs are falling • Inflation pressure is softening • Profit margins are expanding In other words, companies can grow earnings without relying on aggressive hiring or price increases. Full analysis in Opening Bell Daily! 👇

Here's our quick thoughts on the consensus-defying growth numbers release a few moments ago: This was the first full month of data since developments in the Middle East, and the figures defied consensus. The UK economy extended its growth streak, expanding by around 0.3% month on month. More encouragingly, growth was once again broader-based than we have seen for much of the past few years. So what explains the resilience? The UK economy appears to have picked up speed in the first two months of the year following the Autumn Budget, and some of that momentum carried into March. Today’s data suggests that earlier momentum still had some distance to run. That is notable given the fog of uncertainty around the duration and severity of developments in the Middle East. When visibility is limited, behaviour tends to vary: some firms stockpile, some consumers continue to spend as normal, and others become more cautious. Today’s data indicates the first two groups outweighed the third. Looking ahead, survey evidence suggests caution may build from here. The key question is whether March marks a continuation of durable momentum, or whether uncertainty begins to weigh more heavily on sentiment, spending and investment decisions in the months ahead. The latter seems more likely. #UKEconomy #GDP #EconomicGrowth #Macroeconomics #EconomicOutlook #BusinessConfidence #Geopolitics #ConsumerSpending PwC UK

G20 Growth Outlook: 2026 Full Snapshot (International Monetary Fund Projections) The IMF’s 2026 real GDP growth forecasts highlight a widening divergence across the G20, with emerging markets continuing to drive global expansion while advanced economies lag behind. Projected 2026 Real GDP Growth (G20): 🇮🇳 India 6.2% 🇮🇩 Indonesia 4.9% 🇨🇳 China 4.2% 🇦🇷 Argentina 4.0% 🇸🇦 Saudi Arabia 4.0% 🇹🇷 Türkiye 3.7% 🌍 World Average 3.1% 🇦🇺 Australia 2.1% 🇺🇸 United States 2.1% 🇧🇷 Brazil 1.9% 🇰🇷 South Korea 1.8% 🇨🇦 Canada 1.5% 🇲🇽 Mexico 1.5% 🇪🇺 European Union 1.4% 🇬🇧 United Kingdom 1.3% 🇿🇦 South Africa 1.2% 🇷🇺 Russia 1.0% 🇫🇷 France 0.9% 🇩🇪 Germany 0.9% 🇮🇹 Italy 0.8% 🇯🇵 Japan 0.6% Key observations: - Emerging economies dominate the top of the growth table - Advanced economies remain below the global average - Structural reform, demographics and productivity are increasingly decisive growth differentiators As we look toward 2026, global capital allocation, supply-chain strategy and geopolitical influence will continue to shift toward faster-growing G20 economies. Source: IMF, World Economic Outlook (Oct. 2025) Graphic: Visual Capitalist

The US is closing out its strongest nominal GDP growth cycle since WWII — with a 54% expansion from 2020–2025. But this raises a critical question: are we at the top of the business cycle? Historically, such powerful growth spurts often precede a period of cooling. Drivers like fiscal stimulus, resilient consumption, and tight labor markets have pushed output higher. Yet, rising costs of capital, slowing productivity gains, and elevated debt loads suggest that sustaining this pace may be difficult. Markets are now debating whether this is: - The peak before a soft landing into slower but steady growth - Or the setup for a more pronounced downturn as the cycle turns Cycles don’t die of old age — but they do end when the conditions that fueled them shift. The question is whether we’re witnessing that inflection point now. Source: Bank of America