The U.S. economy’s resilience in 2025 is expected to carry over when the calendar turns to 2026, with growth expected to accelerate as tax cuts and more favorable financial conditions take hold and headwinds from tariffs and inflation ease, according to Goldman Sachs.
Goldman Sachs economists led by Jan Hatzius wrote in their 2026 outlook that this year’s economic growth was tempered by the impact of larger than expected tariffs, which pushed the average effective tariff rate on goods imported to the U.S. several percentage points higher than anticipated.
“While the tailwinds powering the U.S. economy did trump tariffs in the end, as we predicted, it didn’t always look like they would and the estimated 2.1% growth rate fell 0.4pp short of our forecast,” they wrote. “Our explanation for the shortfall is that the average effective tariff rate rose 11pp, much more than the 4pp we assumed in our baseline forecast though somewhat less than the 14pp we assumed in our downside scenario.”
Goldman economists see the U.S. economy growing at a faster rate in 2026 with the firm forecasting 2.6% real GDP growth, above the Bloomberg consensus of 2%. That continues a post-pandemic trend of optimism around the U.S. economy relative to consensus forecasts.
US ECONOMY GREW MUCH FASTER THAN EXPECTED IN THE THIRD QUARTER, DELAYED REPORT SHOWS
Goldman projects that U.S. economic growth will accelerate in 2026 because of three factors. One of those is a reduced tariff drag, as the report notes that the 11pp increase in the average effective tariff rate cut 0.6 from U.S. GDP in the second half of 2025, but if tariff rates “remain broadly unchanged from here, this impact is likely to fade in 2026.”
The tax cuts and reforms included in the One Big Beautiful Bill Act (OBBBA) are the second force expected to drive faster economic growth in 2026.
The Goldman Sachs economists estimate that consumers will receive an extra $100 billion in tax refunds in the first half of next year, which is equivalent to about 0.4% of annual disposable income. Additionally, they note that OBBBA’s business tax provisions allowing full expensing of plant and equipment spending “has already started to boost forward-looking capex indicators.”
US ADDED 64K JOBS IN NOVEMBER AFTER LOSING 105K IN OCTOBER, DELAYED REPORT SHOWS
The third factor influencing the forecast of faster economic growth in 2026 are more favorable financial conditions due to interest rate cuts by the Federal Reserve, as well as deregulation and the advancement of artificial intelligence (AI).
While the Goldman Sachs year-ahead outlook sees faster economic growth, it doesn’t see that translating to a significant improvement in the labor market, which has cooled over the course of 2025 amid economic uncertainty stemming from tariffs, immigration changes and downsizing in the federal government.
The unemployment rate rose from 4.1% in June to 4.6% in November and while some of that may have been due to the government shutdown, the analysis noted that the labor market began cooling mid-year prior to the shutdown and, as such, the trend can’t be ignored.
INFLATION REMAINED ELEVATED IN NOVEMBER AS FED CONSIDERS PAUSING INTEREST RATE CUTS
Goldman’s outlook said that it still sees the largest productivity benefits from AI as being a few years off and that while it sees the U.S. unemployment rate stabilizing at around 4.5% in 2026, the economists added that “we do not see a meaningful decline anytime soon.”
“In fact, we could easily imagine further unemployment rate increases in the near term if either productivity-enabling AI applications arrive more quickly than expected or company management teams increase their focus on lowering labor costs in 2026,” the Goldman economists wrote.
The year-ahead outlook also sees progress in lowering inflation after it rebounded to near 3% over the course of 2025. Goldman economists noted that “the main reason why core PCE inflation has remained at an elevated 2.8% in 2025 is tariff pass-through,” and that without tariffs, inflation would have fallen to about 2.3%.
The Goldman economists said that while the tariff pass-through may rise modestly from about 0.5pp now to 0.8pp by mid-2026 – assuming tariffs remain at roughly their current levels – the impact on inflation will diminish in the second half of next year, allowing core PCE inflation to decline to just above 2% by the end of 2026.
Read the full article here
