Global Markets Themes of the Year

MUFG's 2026 outlook highlights critical fiscal constraints across G4 economies, with US interest costs surpassing defense spending and a projected rise in US unemployment to 5%. Global markets are expected to be dominated by debt sustainability concerns, structural rebalancing in China, and divergence in G10 FX performance.

Key Takeaways

• 1.US fiscal policy is under severe constraint as interest expense now exceeds national defense spending, requiring lower rates to manage deficits.
• 2.Global debt sustainability is a major risk, with public debt projected to exceed 100% of GDP by 2029, particularly impacting France, Japan, and the US.
• 3.MUFG holds an out-of-consensus view that US unemployment will rise toward 5%, contrary to Fed projections of a peak already reached.

Table of Contents

• Debt sustainability & fiscal policy – a G4 FX perspective
• China 2026 Fiscal Strategy
• Asia FX | Forecasts at a glance
• 2026 US Outlook
• Growth | AI has driven growth and maybe productivity
• Labor | We have an out of consensus view on U/R
• Inflation | The tug-of-war between services & goods
• Fed | Too optimistic of a view on growth and unemployment
• Forecast Table

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