G7 Economic Comparison

Report date: 29 October 2026. Focus: broad (equities, rates, FX). Market prices as of 15:20 UTC on 29 October 2026.

Executive Summary

The G7 is in a synchronized energy shock, and for the first time in years every central bank in the bloc is either hiking or leaning toward a hike. The US leads on growth (Q3 2026 GDP +3.4% annualized) 1 and the Fed held at 3.75%–4.00% on 28 Oct 2026 after a September hike 2. The ECB held on 29 Oct 2026 with euro-area inflation at 3.8% 3, the Bank of Canada hiked to 2.50% on 28 Oct 2026, its first increase since July 2023 4, and the Bank of England is expected to hike in November 5. France and the UK are the fiscal weak points, with 10-year yields near 5% and above 5% respectively. The headline implication: favor the US and Japan, and underweight France and Italy, where fiscal stress meets a central bank that is tightening into weak growth.

Indicator Comparison

GDP figures are the latest release for each country and are not all on the same basis; the basis is stated in each cell. The euro-area Q3 flash estimate is due on 30 Oct 2026 1. Deficit projections other than the US come from an April 2026 compilation and do not reflect the energy shock since then. Debt figures are IMF October 2026 World Economic Outlook gross general-government debt.

Growth and Inflation Read

Monetary Policy and Rate Paths

Divergence read: The split is not in direction but in what each bank tightens into. The Fed hikes into 3.4% growth; the ECB tightens into near-1% growth and a sovereign-spread problem; the BoC hikes while core inflation is about 2% and jobs are falling, which Rosenberg Research warns could be overtightening 18. The BoJ is the one bank still normalizing from very low rates, so its hikes narrow the gap with the Fed. The result favors the dollar against the euro and leaves the yen as the main candidate to gain if the BoJ moves in December.

Fiscal Position and Constraints

• Room to spend: Germany has by far the lowest debt in the bloc at 64.6% of GDP 7, and the 10-year Bund yield of about 3.37% acts as Europe's safe haven 19.
• Most constrained — France: The 10-year OAT went above 5% on 21 Oct 2026 for the first time since 2002 20. The OAT–Bund spread peaked at 177.7 bp in the week of 19 Oct 2026, the widest since November 2011, before easing to about 153.5 bp 21.
• Italy: Goldman Sachs flags rising risk premia as the deficit widens before an election due by 22 Dec 2027 22. The BTP yields about 4.52%, below the OAT 19.
• United Kingdom: The 28 Oct 2026 Budget slightly increased fiscal tightening but also planned slightly more debt issuance; BBH judged it neutral for gilts 23. ING said it left long-term challenges "unfunded and unaddressed" 15.
• Japan: The government plans to cut the 8% consumption tax on food for two years from April 2027 24, and the EIU expects a sharp rise in net JGB issuance for the market to absorb 25. Most debt is in yen and held at home, which limits default and currency risk 25.
• United States: CBO projects a 5.8% of GDP deficit in fiscal 2026, rising to 6.7% by 2036, with net interest driving most of the rise 6.

Market Positioning

Equities

Returns are in local currency.

Fixed Income

Currencies

Credit

Not in focus for this note. US high-grade corporate bonds (LQD) are down 5.4% YTD and high yield (HYG) 3.8%, mainly on rates 26.

Divergence and Convergence Themes

1. Energy shock, synchronized tightening. Brent is at US$109.53, up 79% YTD 26, and the BoC, ECB and BoE all cite energy as the reason to tighten 4 13 14. It helps Canada's terms of trade and hurts energy importers with weak growth: Italy, France and Germany.
2. Fiscal stress in the bond market. France, the UK and Italy pay the most for their debt, while Germany is the safe haven. The US also has a large deficit, but its growth gives it more room. This hurts French and Italian assets and the euro.
3. Japan's normalization. Japan has the lowest policy rate in the G7 and is still normalizing from very low levels. Further BoJ hikes and the return of domestic buyers to JGBs could support the yen and Japanese banks, and could tighten global liquidity at the margin.

Ranked View

Allocation implication: Overweight the US and Japan. Neutral Canada, Germany and the UK. Underweight Italy and France. In rates, prefer Bunds and Canadian bonds; avoid OATs and BTPs.

Key Events to Watch

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