Goldman Sachs Group Inc. economists have issued a bullish forecast for the US economy in 2026, predicting robust growth driven by tax cuts, productivity gains, and rising wealth while inflation moderates. The bank's 2026 US Economic Outlook report, dated January 11, outlines expectations for continued economic outperformance compared to developed-world peers.

Economic Growth Projections

Goldman Sachs forecasts significantly stronger growth than the Bloomberg economist consensus. The bank's projections show:

David Mericle, Goldman's chief US economist, noted that "the composition of GDP growth will look different from last cycle in the years ahead." He emphasized that more growth will come from productivity improvements, which have rebounded and should receive a boost from artificial intelligence, while less will come from labor supply growth due to reduced immigration.

Federal Reserve Policy Expectations

The report anticipates the Federal Reserve will deliver two additional 25 basis-point interest rate cuts during 2026:

This monetary policy outlook reflects the bank's assessment of labor market uncertainty and the overall economic trajectory.

Inflation and Employment Outlook

Goldman Sachs projects inflation will continue moderating throughout 2026:

The economists acknowledge risks of a period of jobless growth as companies increasingly adopt artificial intelligence technologies to reduce labor costs, despite overall economic expansion.

Growth Drivers and Trade Policy

Business investment is expected to be the strongest component of GDP in 2026, benefiting from easier financial conditions, reduced policy uncertainty, and tax incentives. Consumer spending should grow steadily, supported by President Trump's tax cuts package and real wage gains.

Regarding trade policy, Goldman assumes the upcoming mid-term elections will see cost-of-living issues emerge as a major political theme, leading the administration to avoid significant further tariff increases. This assumption underpins the bank's optimistic growth projections and expectation of continued US economic outperformance relative to other developed nations.

Goldman Sachs expects India's consumption recovery to gain momentum in the second half of FY27, despite ongoing concerns about the current financial year's slowdown. Santanu Sengupta, Chief India Economist at Goldman Sachs, believes the foundational elements for a turnaround are already established and will become more apparent over the coming months.

Policy Support Framework

The Reserve Bank of India has implemented significant monetary policy measures to support economic recovery. The central bank has reduced interest rates by 125 basis points and injected liquidity worth approximately 3% of GDP. While the impact of these measures has been gradual, Sengupta anticipates more visible effects over the next year.

Consumer Segment Recovery Outlook

Sengupta expressed optimism about consumer demand, particularly for lower-income households. "We feel pretty good about consumer, especially at the bottom end of the pyramid going into the next year," he stated. The recovery is expected to be supported by multiple factors working in conjunction:

• Easier credit access
• Goods and services tax rate reductions
• Increased fiscal transfers from state governments, especially during election periods

These combined measures are anticipated to provide sustained demand growth as FY27 progresses.

Urban Market Dynamics

Recent data continues to show weakness in urban and high-end segments, including housing. Sengupta attributes this to higher-income consumers' existing debt burden. When income tax and interest rate cuts were implemented, these households primarily used the benefits to reduce their loan obligations rather than increase spending.

The housing loan sector exemplifies this trend, where rate cuts often resulted in reduced loan tenures rather than lower monthly EMIs. This behavior reflects households' focus on balance sheet improvement rather than consumption expansion.

Credit Growth and Deleveraging Phase

Early indicators of recovery are emerging in urban credit growth, supported by RBI's regulatory easing measures. Sengupta views the current deleveraging phase as beneficial for long-term economic health, as it positions households for future borrowing and spending activities.

Investment and Sectoral Outlook

Regarding investment trends, Sengupta does not anticipate a broad-based private capital expenditure revival. Instead, he identifies specific sector opportunities in power (renewable and conventional), electronics, and defence. Public capital expenditure growth is expected to moderate after recent front-loading, though fiscal consolidation may be less aggressive, reducing growth constraints.

Despite rate cuts, long-term bond yields remain elevated due to increased state government bond supply and reduced demand from insurance and pension funds, which are allocating more resources to equities. Sengupta expects some easing in yield curve steepness over the next year, though significant further declines may be limited as the RBI approaches the end of its rate-cutting cycle.

Economic Growth Projections

Sengupta anticipates India will achieve growth rates in the late 6% range during FY27, supported by policy measures and improved economic fundamentals. The recent rupee depreciation is viewed as a necessary adjustment following earlier overvaluation, with more attractive valuations expected to enhance capital flows and prevent a third consecutive year of balance-of-payments deficit.