Goldman Sachs 2027 Macro Outlook: Global Economy to Accelerate Slightly, but the Path Remains Rocky and Downside Risks Cannot Be Ignored

The global economy has shown stronger-than-expected resilience following the shock of the 2026 Iran war, but Goldman Sachs warns that the growth path for 2027 will be more challenging, with risks clearly tilted to the downside.

According to the 2027 macro outlook report led by Goldman Sachs Chief Economist Jan Hatzius, global GDP growth is expected to rise slightly from 2.7% in 2026 to 2.8% in 2027, marginally above potential growth.

The core judgment of the report is: normalization of energy prices and continued strong AI capital expenditure will be the main support, but tighter financial conditions and receding fiscal stimulus will act as offsets, making the overall growth pattern “solid but subdued.” At the same time, Goldman Sachs directly points to three major downside risks — renewed escalation in Iran, bond market turbulence, and an earlier-than-expected AI investment cycle peak — and believes the challenges for markets will surpass those for the macroeconomy itself.

On the monetary policy front, Goldman Sachs expects the Federal Reserve to raise rates once in December and again in March next year, with the European Central Bank completing its final hike in December, and both central banks shifting towards rate cuts by the end of 2027. Goldman Sachs' rate forecasts are generally more dovish than market pricing, a judgment that serves as a potential positive for stocks and bonds. In asset allocation, Goldman Sachs maintains baseline forecasts for positive returns on equities and bonds but emphasizes that as the market cycle matures, the likelihood of rising volatility outweighs declines, and recommends investors strengthen hedging and diversification strategies.

Growth Driver Rotation: Energy Turns Positive, AI Investment Remains the Main Engine

In 2026, surging AI capital expenditure, loose financial conditions, and fiscal expansion in economies such as the U.S. and Germany largely offset the energy supply shock from the Iran war, resulting in 2.7% global economic growth — just 0.1 percentage points below Goldman Sachs' earlier forecast. Taiwan and South Korea notably outperformed due to booming AI exports, beating expectations by 8.6 percentage points and 1.9 percentage points respectively, while the U.S. and Eurozone slightly lagged.

Looking ahead to 2027, the energy price shock is expected to shift from a drag to a boost. Goldman Sachs' commodities strategists’ baseline forecasts Brent crude oil prices dropping to $78 per barrel by end-2027, with global LNG prices normalizing in tandem, turning energy prices from a 0.4 percentage point drag in 2026 to a modest lift in 2027.

AI capital expenditure remains the most important growth engine. Goldman Sachs forecasts that nominal global AI investment will rise from $1.1 trillion in 2026 to $1.8 trillion in 2027, with most of the incremental increase coming from over $500 billion more in U.S. hardware spending. AI investment is expected to contribute about 0.4 percentage points to global GDP growth, and after adjusting for the statistical underestimation of semiconductor investment and chip-related IP exports, the impact on U.S. “real” GDP growth could be as high as 0.6 percentage points.

On the fiscal and financial side, the Goldman Sachs Financial Conditions Index (GS FCI) has tightened by roughly 50 basis points in the U.S. and 30 basis points in developed markets over the past three months, moderately weighing on growth in the coming quarters. The marginal effect of fiscal expansion is also fading, with Japan being a major exception — consumption tax cuts, increased defense spending, and high municipal investment are expected to boost Japan’s GDP growth by 0.7 percentage points.

Among major economies, Goldman Sachs holds a relatively optimistic view on U.S. economic growth, projecting 2.4%, above the consensus 2.2%; it is more pessimistic on Europe, forecasting 0.9% growth, lower than the consensus 1.3%, mainly due to tighter financial conditions and high energy prices becoming evident by next winter. Goldman Sachs forecasts China’s growth at 4.5%, slightly higher than the consensus 4.4%.

Three Major Downside Risks: Energy, Bonds, and AI Cycle

Goldman Sachs explicitly characterizes 2027 global growth risk as skewed to the downside and lists three primary channels.

1. Renewed escalation in Iran. Outside its baseline forecast, Goldman Sachs’ commodities strategists assign greater weight to an upside risk scenario: intensified shipping attacks, damaged oil infrastructure, and a more sustained risk premium could push oil prices to $132 per barrel. If realized, the energy price shock would continue to be a drag on global growth in 2027, and unlike 2026, financial conditions and fiscal policy would have less capacity to provide effective offsets.
2. Bond market turbulence. Developed market yield curves are currently about 85 basis points above levels at the start of 2026. Goldman Sachs estimates that if this rise persists, it will cumulatively weigh on GDP by about 0.5% through housing, durable goods, and business investment channels. France’s fiscal risk is particularly prominent — 10-year French OAT yields are about 150 basis points above German bunds, and fiscal health indicators are flashing red. Goldman Sachs expects substantive fiscal consolidation discussions will not start before the April 2027 presidential and June parliamentary elections in France, but markets may apply earlier pressure, creating a larger drag on growth.
3. AI investment shock wanes. Goldman Sachs notes that the stock prices of hyperscale cloud providers have shifted from positive responsiveness to higher capex signals in earnings calls in 2024 and 2025 to slightly negative in 2026, reflecting market concerns about overinvestment. In addition, the magnitude of capex upgrades by hyperscalers during Q3 earnings season has slowed, suggesting the AI investment cycle’s peak is coming into clearer view.

Regarding AI’s impact on the labor market, Goldman Sachs has observed early signals: in non-manufacturing sectors, the adoption rate of AI in routine business functions is now statistically significantly negatively correlated with employment growth, and positively correlated with unemployment — a relationship that was not significant at the start of the year. Goldman Sachs’ baseline forecast is that the shock from AI to the labor market will mainly concentrate in 2028 to 2029, but in the event of an economic downturn, companies may act more aggressively in lowering hiring targets, accelerating this process.

Inflation: Progress Expected but Risks Remain to the Upside

Inflation overshot in 2026, mainly due to energy price spikes from the Iran war, with global headline inflation (Q4 YoY) closing at 3.7%, 1.3 percentage points above Goldman Sachs’ earlier forecast.

Looking ahead to 2027, Goldman Sachs believes the conditions are now in place for inflation to recede. In the U.S., the tariff passthrough effect (currently contributing about 40 basis points to core PCE YoY growth) is expected to fully drop out of the annual comparison by next spring. Combined with the fading of the Iran war inflation shock, Goldman forecasts U.S. core PCE increases will slow from 3.2% at end-2026 to 2.4% at end-2027.

However, inflation could remain somewhat sticky in early 2027. Goldman Sachs cites three reasons:

• The passthrough from higher energy prices will continue into next year, especially in Europe (for example, European airline ticket prices have yet to fully reflect higher fuel costs);
• Global memory prices were revised upwards again in the last earnings season, providing additional support for core inflation, with the U.S. especially affected;
• Upstream cost pressures have increased and broadened, and historically this keeps the risk of inflation overshooting elevated until spring next year.

Goldman Sachs also notes that if the Iran situation escalates again, under the team’s adverse scenario, headline inflation in 2027 would be 0.9 percentage points above baseline, with core inflation up 0.2 percentage points.

Monetary Policy: Rate Hikes Nearing an End, Rate Cut Path Becoming Clearer

Goldman Sachs expects the Federal Reserve to hike rates once in December and again in March next year, then start rate cuts in December 2027, with three more cuts in 2028, bringing the terminal rate to 3.25% to 3.5%. Goldman Sachs sees U.S. rate risk as skewed dovish, due to the more clearly transitory nature of U.S. inflation drivers and the U.S.’s greatest exposure to a downturn in the AI cycle.

For the European Central Bank, Goldman Sachs expects the final hike in December, then a normalization of cuts in Q4 2027, with the terminal rate at 2.25%. The Bank of England is projected to make a final hike next February to 4.25%, remain on hold, and postpone cuts to a 3.25% terminal rate until 2028. Goldman Sachs is more dovish than market pricing for both the ECB and the Bank of England.

Japan is the main exception. Goldman Sachs expects the Bank of Japan to raise rates by another 25 basis points at the December policy meeting, followed by more hikes in March and June next year, ending with a terminal rate of 2.0%, due to inflation risk and the pressure of global high rates on the yen.

In emerging markets, Goldman Sachs maintains an overall dovish stance, expecting most central banks in Central and Eastern Europe, the Middle East, Africa, and Latin America to cut rates in 2027, while Asian rates remain largely flat or edge slightly higher.

Market Outlook: Positive Returns Expected, but Greater Volatility Risk

Goldman Sachs’ baseline forecast indicates positive returns for both stocks and bonds in 2027, with commodity returns close to zero. However, Goldman Sachs also warns that market challenges will be more severe than macroeconomic ones.

For equities, Goldman Sachs expects S&P 500 earnings growth to slow from 36% in 2026 to 11% in 2027 — still robust, but the moderation means market concerns around the AI investment cycle peaking will intensify.

Goldman Sachs points out that the AI investment boom has contributed far more to corporate earnings and market capitalization than to GDP growth — with S&P 500 earnings as a share of GDP at an all-time high — and once the investment shock fades, markets will confront the question of whether this high profit share can persist. Regionally, Goldman Sachs recommends overweighting the U.S. and Japan, neutral weight for Asia ex-Japan and emerging markets, and underweighting Europe.

For credit markets, Goldman Sachs expects credit spreads to widen further in 2027, with U.S. high-yield bonds underperforming, and tail risks from weaker credits potentially triggering broader financing market turmoil.

Regarding the bond market, Goldman Sachs notes real yields are near 30-year highs, and the hedging value of bonds is being gradually restored. As growth risks rise in the second half of 2027 and central bank hiking cycles conclude, the negative correlation between bonds and equities should reassert itself. Goldman Sachs predicts the 10-year U.S. Treasury yield will fall to 4.6% by end-2027.

For FX markets, Goldman Sachs’ baseline forecast is for moderate dollar depreciation, with the renminbi continuing to appreciate supported by the trade surplus. If skepticism about U.S. tech stocks’ “exceptionalism” accelerates, the dollar could fall more sharply, while the yen would appreciate significantly thanks to safe-haven demand.

On commodities, Goldman Sachs recommends using them as a portfolio hedge, with European natural gas futures and TTF call options serving as asymmetric hedges against higher energy prices. In addition, Goldman Sachs believes as the market cycle matures, equity index volatility is more likely to rise than fall, and investors should consider deeper protection via out-of-the-money put options or replacing stock positions with long-term call options.