Czech Republic

Labor and skill shortages will make the administration’s goal to re-shore industrial production very challenging, despite the investment plans announced by some companies. And while the deregulation agenda could provide some tailwind to growth, these effects are more likely to be felt over several years and will not be enough to offset major headwinds to growth. We expect the ‘’Big Beautiful Bill’’ fiscal package of tax cuts to have a modest impact on growth as rising fiscal imbalances could prompt the private sector to save rather than spend the proceeds.

Against this backdrop, the economy will continue to benefit from secular trends on investment, including equipment investment, growing investment in data centers and hardware equipment. In all, we expect US GDP to grow well below +2% through 2026. 

Tariff-induced inflation and elevated household inflation expectations will keep the Fed on the hawkish side unless the economy unexpectedly deteriorates rapidly. 

The labor market is expected to cool further in 2025 but with only a moderate increase in the unemployment rate. Indeed, slowing labor supply, induced by tight immigration policy, should put a floor on unemployment. In this context, we expect the Fed to start a cautious cutting cycle in December 2025. We see the Fed continuing to normalize policy in 2026 by cutting interest rates down to our estimate of the neutral rate (3.5%) by mid-2026 amid low growth and cooling inflation. Upside risks to inflation will remain, keeping the Fed prudent.

Corporate bankruptcies have been on a firm upward trend since 2022, though they remain contained relative to historical averages. However, insolvencies of large firms remained way above pre-pandemic levels. Persistently elevated funding costs and the higher-tariff-driven rise in input costs are straining some US companies. However, other factors are also at play, including a weak industrial sector overall and changing consumer spending patterns.  We expect business bankrupticies to increase substantially in 2025 (+13%) and to continue increasing in 2026 (+5%) amid a rapid growth slowdown and prolonged high interest rates. 

The US remains the world’s largest economy and the US dollar remains by far the world’s largest reserve currency amid large and liquid financial markets, unparalleled in other countries. The US dollar also continues to benefit from strong network effects, meaning that it remains by far the most used currency for cross-border transactions.
Nevertheless, the economy is carrying a tremendous public debt load which continues to rise. The Big Beautiful Bill will push up the federal deficit further in 2026 amid the rollout of largely unfunded tax cuts. A large body of evidence suggests that lower taxes do not ‘’pay for themselves’’ and therefore increase deficits. Another worrying trend is rising interest expenses amid persistently high interest rates since 2022.
Increasing political infighting – as highlighted by repeated stand-offs in Congress between and within parties over the budget and/or the debt ceiling – and no firm commitment from both political parties mean that the public debt load will continue to rise rapidly in the absence of ambitious policy measures to rein in spending and/or increase revenues.

The business environment in the US is very accommodating, with the economy consistently ranking amongst the top performers in ease of doing business reports. The hallmarks include strict enforcement of contracts, the ease of resolving insolvencies, the rule of law in general and the easy access to credit. However, politics is becoming increasingly divisive, both between and within political parties. Repeated disagreements over the debt ceiling and the budget have increased economic and political uncertainties.
Measures introduced to counter China’s growing influence – such as export restrictions on high-end chips and software – are likely to be strengthened over coming years, amid political consensus to rein in China’s access to western technology. Moreover, the strong policy push towards re-industrialization will continue under the Trump administration, with industrial subsidies likely to be ramped up for sectors such as steel, aluminium and automotives.