Recent developments in the global economy in World Economy News 12/01/2026 Commodities The new year has started with further supply risks facing the oil market following the US arrest of Venezuelan President Nicolás Maduro. This action adds some supply risk to the market in the short term. However, longer term, a smooth transition means the potential for stronger Venezuelan supply. Admittedly, this will take several years and will also require foreign companies to invest in the domestic oil industry, which is easier said than done. The oil market has not reacted strongly to developments in Venezuela, with the market likely having already priced in some supply risk following the US blockade on sanctioned tankers entering and leaving Venezuela. Meanwhile, a well-supplied global market will also offer comfort. OPEC+ supply increases have seen the Middle East physical oil market weaken significantly. We continue to hold onto our bearish outlook for the oil market in 2026, forecasting Brent to average US$57/bbl this year. United States A resumption of official economic data in December indicated ongoing robust growth, slowing inflation and a cooling jobs market in the US. However, the details suggest the story is more nuanced. 4.3% annualised GDP growth in the third quarter of 2025 reflected a stellar performance from net trade and government demand. Both are set to reverse course in the fourth quarter, while consumer spending and investment illustrate the K-shaped narrative. High-income households spend aggressively, boosted by soaring wealth, while middle and lower-income households remain worried about job security and the impact of tariffs on their spending power. Meanwhile, tech-related business investment is soaring, tied to AI mania, while residential investment and non-tech business capex contracts. We believe the underlying rate of growth will be close to 2% in 2026. The slowing in core inflation to 2.6% in November from 3% in September likely overstates the degree of cooling price pressures, due in part to questionable assumptions on housing costs. Nonetheless, the Fed believes the tariff impact on inflation has nearly passed, and we argue that slowing wage growth, cooling housing rents and lower energy costs mean inflation remains on the path to 2%. This gives the Fed room to cut policy rates twice more in 2026. Eurozone The eurozone, with the addition of Bulgaria at the beginning of 2026, now includes 21 member states. The bloc ended 2025 on a softer note: the composite PMI fell back, though it remained above the 50 boom-or-bust level. Renewed weakness was seen in manufacturing, but growth expectations were the strongest since Russia’s invasion of Ukraine, probably banking on the impact of the German budgetary stimulus in 2026. While growth in the fourth quarter of 2025 is likely to be weaker than in the third, we still expect a gradually accelerating growth pace this year, resulting in 1.2% average GDP growth. On the back of lower energy prices, inflation is still set to decline. Even the stickier services price inflation should moderate, as the ECB’s wage tracker is pointing to a clear deceleration in wage increases. We maintain our inflation forecast of 1.9% for 2026. As the ECB’s staff upgraded both the growth and inflation outlook, the conviction that rates will be held at the current 2% level this year has only strengthened. China China’s economy continued to see a broad-based slowdown in November, though a stronger-than-ex