United States (U.S.):
The U.S. economy started 2026 on a firm note. Manufacturing Purchasing Managers’ Index (PMI) rose to 52.4 according to S&P Global and 52.6 based on the Institute for Supply Management, marking the first expansion in a year, while services PMI edged up to 52.7 from 52.5. However, survey responses highlighted that the rebound may be temporary amid tariff-related uncertainty, weakening international demand, and rising input costs. Amid this mixed momentum in activity, price pressures showed tentative signs of easing. Inflation declined to 2.4% (YoY) from 2.7%, its lowest level in eight months, with core CPI slowing to 2.5% (YoY). Nevertheless, on a monthly basis, core inflation accelerated to 0.3%, and core services inflation remained elevated at 0.4% (MoM), indicating persistent underlying pressures.
Meanwhile, labor market dynamics continued to underscore economic resilience. Employers added 130,000 jobs in January, the unemployment rate fell to 4.3% from 4.4%, and labor force participation edged up to 62.5%. In response to moderating but still-sticky inflation and steady employment conditions, the Federal Reserve maintained its benchmark rate at 3.50%–3.75%, with Chair Jerome Powell signaling a cautious pause at least through mid-year. While headline indicators remain constructive, risks persist from the lagged effects of tariffs, elevated fiscal deficits, and sticky services inflation.
Euro Zone:
The euro area entered 2026 with signs of gradual stabilization. Consumer confidence improved to -12.2 in February, its highest since November 2024, while PMI rose to 51.9 from 51.3, marking the strongest private sector expansion since November, supported by firmer manufacturing and steady services activity. However, demand remained soft, with only marginal growth in new orders and a slight decline in employment. The cautious demand environment was also reflected in household spending trends. Retail trade volumes fell by 0.5% (MoM) in December, reversing November’s increase, although annual retail sales still grew by 1.3% (YoY) and averaged 2.3% growth in 2025, reflecting resilient but prudent consumer behavior, based on data from the European Commission and Eurostat. At the same time, price pressures continued to moderate. Inflation eased to 1.7% (YoY) in January 2026 from 2.0%, driven by a sharper decline in energy prices (-4.1% YoY) and softer services inflation (3.2%), while core inflation slowed to 2.2%. Although inflation fell below target, expectations remain anchored near 2%. In response, the European Central Bank maintained its policy rate at 2%, citing economic resilience.
China:
China’s economy is projected to lose further momentum in 2026, with the World Bank forecasting growth to moderate to 4.4% in 2026, following an expansion of 4.9% in 2025. The slowdown reflects subdued consumer confidence and a prolonged property sector downturn. Inflation also remained low, with CPI slowing to 0.2% (YoY) in January 2026 from 0.8% (YoY) in December, while housing prices continued to decline, with new home prices across 70 cities falling by 3.1% (YoY), marking the 31st consecutive month of contraction.
Despite these headwinds, some pockets of resilience are visible. The Manufacturing PMI rose to 50.3 in January from 50.1, signaling modest expansion, while core CPI increased by 0.3% (MoM) and PPI posted a fourth consecutive monthly gain of 0.4% (MoM). On the policy front, the People’s Bank of China kept the 1-year LPR at 3.0% and the 5-year LPR at 3.5% but reduced the one-year relending rate from 1.5% to 1.25% to support liquidity. Authorities have pledged a proactive fiscal stance and accommodative monetary policy, aiming to cushion the slowdown and maintain growth near the 5% target.
Indonesia:
Indonesia’s economy closed 2025 on a solid footing, with full-year growth reaching 5.11% (YoY) and projected to remain stable at 5.1%–5.2% in 2026. Growth has been supported by household consumption expanding 5.1% (YoY), investment growing 6.1% (YoY), and a strong rebound in retail sales in January 2026 which rose 7.92% (YoY). This strengthening domestic demand continues as it has been reflected in leading indicators, as manufacturing activity from Purchasing Manufacturing Index (PMI) returned to expansion in January 2026 and Consumer Confidence Index (CCI) improved about 2.80%(MoM) rising to 126.9 signaling sustained optimism in the near-term economic outlook. Externally, Indonesia maintained a 2025 trade surplus of USD 41.05 billion, although the monthly surplus narrowed to USD 2.51 billion as imports grew 20.02% (MoM), outpacing export growth of 16.99% (MoM). Meanwhile, foreign exchange reserves remained adequate at USD 154.6 billion, equivalent to 6.3 months of imports, providing a buffer against external volatility.
At the same time, macroeconomic stability remains the key policy focus amid global financial uncertainty. Inflation rose to 3.55% (YoY) in January 2026, partly reflecting base effects, while the rupiah depreciated 1.57% year-to-date to IDR 16,886 per USD. Bank Indonesia maintained its policy rate at 4.75% to safeguard currency and inflation stability. These monetary measures are complemented by fiscal developments that reflect continued policy support for growth. On the fiscal front, as of 31 January 2026, the State Budget recorded a deficit of IDR 54.6 trillion (0.21% of GDP), driven by strong expenditure growth despite solid tax revenue performance. However, declining non-tax revenues due to lower oil lifting and commodity price normalization pose downside.
