North America enters 2026 as a relative outlier among advanced economies as global growth moderates. The International Monetary Fund (IMF) in its World Economic Outlook (January 2026) projects advanced economies to grow around 1.7% in 2025 and 1.8% in 2026, while the United States (US) is forecast to slow to 2.1% in 2025 and accelerate to 2.4% in 2026. Incoming data towards the end of 2025 point to firmer-than-expected economic momentum in the US, led by resilient consumer spending, services activity and supportive financial conditions. This late-year strength does not overturn the IMF’s medium-term assessment, but it reinforces the distinction between near-term growth resilience and the structural fiscal and market sensitivities that shape the banking outlook entering 2026. The IMF explains that the US forecast is supported by easing financial conditions and a fiscal boost, while also highlighting the drag from policy uncertainty, higher trade barriers and slower labour force and employment growth. For banks, this mix tends to support activity but raises the premium on underwriting discipline and balance-sheet resilience if sentiment turns. Canada’s trajectory is more subdued. The IMF forecasts Canada to grow 1.6% in 2025 and in 2026, a 0.1 percentage point upward revision from the October forecast. This creates a different near-term credit backdrop from the US even within highly integrated trade and financial corridors. In financial markets, the IMF’s Global Financial Stability Report (October 2025) frames the present moment as “shifting ground beneath the calm”. Volatility has eased since earlier disruptions, yet economic, trade and geopolitical uncertainty remain elevated, a combination that has historically been associated with abrupt repricing episodes rather than gradual adjustments. The regional banking outlook therefore cannot be read purely from gross domestic product growth. It must also account for the interaction between fiscal financing needs, market-based intermediation and the way US asset prices and dollar conditions propagate globally. For North American banks, stability in 2026 is shaped as much by market functioning and confidence as by domestic loan demand. Growth resilience and macro divergence The US is projected to maintain growth above the advanced-economy aggregate in 2026. The IMF attributes this outlook to easing financial conditions and a fiscal boost, even as it emphasises that growth is materially slower than 2024 relative to earlier expectations because of policy uncertainty, trade barriers and weaker labour dynamics. The late-2025 data flow reinforces this divergence. US growth continued to track above the advanced-economy average into the final quarter of the year, while Canada’s outlook remained more constrained by household leverage and housing-related adjustment. For banks, this divergence translates into different credit, funding and risk-management conditions within an otherwise tightly integrated North American financial system. For banks, this backdrop supports transaction activity and credit formation, but the quality of growth matters. When the IMF flags uncertainty and trade barriers as headwinds, it implies a higher likelihood of dispersion across sectors and borrowers, which typically pushes banks towards selective balance-sheet deployment rather than broad-based expansion. Canada’s growth profile is weaker. The IMF forecasts 1.6% growth in 2026 and links the downgrade since the prior year’s October outlook to the shifting international trade landscape, underscoring how external conditions can weigh on a small, open economy even when the US remains comparatively resilient. Trade is a direct channel of divergence. The IMF projects world trade volume growth of 2.9% on average in 2025 and 2026 and points to persistent trade fragmentation limiting gains, a theme that matters acutely for North American banks supporting cross-border corporates and supply chains. The practical implication is that North American banks enter 2026 with a supportive headline growth picture compared with peers, but a more complex distribution of risks. Institutions that price uncertainty correctly, avoid complacency during calm markets and align exposures to sectors with resilient cash flows are better positioned for a cycle shaped by policy and trade frictions rather than pure demand strength. Fiscal dynamics and sovereign market interaction Fiscal vulnerabilities are a recurring concern in the IMF’s global framing. The IMF explicitly warns that fiscal vulnerabilities and financial market fragilities may interact with rising borrowing costs and increased rollover risks for sovereigns, a formulation that matters most in jurisdictions where sovereign markets also anchor global pricing. For North American banks, this is not an abstract macro point. Large sovereign funding needs influence the level and volatility of risk-free curves, the pricing of credit and the valuation of liquid assets used in treasury and collateral management, all of which feed directly into bank balance-sheet decisions. Heavy US Treasury issuance persisted into late 2025, increasing the system’s reliance on smooth market functioning and dealer balance-sheet capacity. While no acute stress has emerged, this dynamic reinforces the IMF’s emphasis on market depth and liquidity as critical transmission channels, with implications for bank funding, collateral management and intraday liquidity planning. Market calm should not be mistaken for low fiscal sensitivity. The IMF notes that volatility has declined even as uncertainty remains elevated, implying that investors may be under-pricing policy and fiscal tail risks until a catalyst forces repricing. This heightens the importance of liquidity readiness and intraday funding discipline. Canada is not framed by the IMF as facing the same global benchmark role as the US, but the IMF’s emphasis on the changing trade landscape and the broader discussion of fiscal vulnerability interacting with market fragilities still applies through confidence and spillovers rather than purely domestic issuance mechanics. The central banking-system takeaway is straightforward. In 2026, fiscal-market interaction is a first-order operating variable for North American banks, affecting funding conditions, capital market activity and the speed at which shocks are transmitted. Balance-sheet resilience depends on conservative liquidity assumptions and credible contingency planning, not only on point-in-time capital ratios. Financial stability and the dominance of market-based finance The IMF highlights a rebound in asset prices and a decline in volatility since earlier disruptions, supported by expectations of monetary policy easing across major economies. At the same time, it stresses that uncertainty remains elevated, reinforcing the risk of sentiment-driven swings. Within that rebound, the IMF points to equity price gains “largely on the back of outperformance in artificial intelligence (AI)-related sectors”. This matters for North America because US equity and credit markets serve as reference points for global risk appetite, and repricing in concentrated segments can transmit rapidly across portfolios and funding markets. The IMF reinforces the asymmetric nature of this risk by noting that an abrupt repricing of tech stocks could be triggered by disappointing results on earnings and productivity gains related to AI, with broader macro-financial implications. That channel is not a remote tail for banks operating in a system where market collateral values and confidence can shift quickly. The IMF also points to rising retail interest in private credit and high-yield bond funds, a dynamic that can amplify credit downturns. Even where banks are not the primary balance-sheet lenders, they can be exposed through underwriting, trading, prime services, custody and correlated risk sentiment. For North American banks, financial stability risk in 2026 is therefore shaped less by a classic deposit-and-loan cycle and more by market structure: concentrated equity leadership, the behaviour of funds and the capacity of market liquidity to absorb shocks. The discipline required is tighter market-risk governance, stress testing for liquidity and collateral shocks and a conservative approach to correlated exposures during periods of calm. Geopolitics, trade and currency exposure The IMF frames the global outlook as being held back by uncertainty and protectionism. It warns that further escalation of protectionist measures, including non-tariff barriers, could suppress investment, disrupt supply chains and stifle productivity growth, with cross-border effects that are material for North American banks financing trade, inventory and working capital. Trade volumes are growing, but more slowly than recent history. With world trade growth forecast at 2.6% in 2026 and persistent fragmentation limiting gains, banks face a client environment in which trade and supply chains may be rerouted or restructured rather than simply expanded. Currency conditions are part of this transmission. The IMF notes that pressures on emerging market financial markets eased “as the dollar weakened” and trade deals were reached, highlighting how global financial conditions and cross-border capital dynamics continue to be mediated through the dollar channel. That mechanism matters for North American banks because dollar conditions shape global funding and risk pricing. Geopolitical developments towards the end of 2025 provided concrete reminders of these transmission channels. Ongoing conflict in Ukraine, the Gaza war, shifts in US-Venezuela energy relations and broader Middle East tensions continued to influence commodity prices, risk sentiment and dollar funding conditions. These factors reinforce the exposure of North American banks to global confidence and liquidity dynamics, even when domestic economic conditions appear supportive. Geopolitics also interacts with trade architecture. Moody’s Ratings’ global macro 2026 outlook describes trade shifts and policy divergence as central to the 2026 and 2027 environment, with rising restrictions and uncertainty increasing the possibility of US-China decoupling even as other regions deepen integration through agreements. This raises execution complexity for banks supporting multinational clients and cross-border settlements. The banking implication is that geopolitics in 2026 is not only a “risk factor” but an operational and balance-sheet variable. Banks that map exposures across corridors, stress-test currency and funding assumptions and build resilience in cross-border execution are better placed to support clients in a world where policy shocks can disrupt supply chains, alter settlement frictions and shift capital flows quickly. Digitalisation and structural change in banking Digitalisation enters the macro outlook through both growth expectations and financial stability risks. The IMF explicitly links the risk of an abrupt tech repricing to the possibility of disappointing earnings and productivity gains related to artificial intelligence (AI), a reminder that technology optimism can become a stability vulnerability when expectations are concentrated. Late-2025 market performance underlined this concentration dynamic. Equity gains remained heavily skewed towards technology- and AI-linked segments, increasing the system’s sensitivity to valuation shifts and confidence effects. For banks operating in market-led systems, this reinforces the importance of managing collateral values, margining and liquidity buffers against the risk of abrupt repricing. Moody’s banking-sector outlook anchors the North American story in more bank-specific terms. It expects rate cuts to support profitability in the US and describes revenue growth outpacing expense growth over the next 12 to 18 months, partly supported by higher fee income, while also outlining how funding and liquidity conditions have been shaped by deposit migration since 2023. These are operational realities that intersect with digital competition and cost take-out programmes. Canada’s position is framed by Moody’s Ratings as one of strong capital ratios and broadly stable profitability, although it flags that net interest margins may be temporarily pressured by the Bank of Canada’s rate cuts. In practice, that creates incentives to pursue efficiency and revenue diversification, which is often where AI and automation are applied most aggressively. The governance dimension matters as much as the efficiency case. The IMF’s framing of AI-linked repricing risk is a reminder that model-driven optimism can overshoot fundamentals, while Moody’s emphasis on operating leverage and profitability highlights why banks may be tempted to accelerate automation. In 2026, the credibility test is whether digital gains are achieved without weakening controls, risk governance or customer outcomes. For North American banks, digitalisation should therefore be treated as a structural discipline rather than a branding theme. The institutions that embed strong governance, demonstrate control over model risk and manage technology dependencies prudently are more likely to sustain performance in an environment where market confidence, not just operating efficiency, remains decisive. Stability anchored in markets, exposed to shocks Banks in the US and Canada enter 2026 with a comparatively supportive macro baseline and financial markets that have rebounded from earlier volatility. The IMF projects US growth to remain at 2.4% in 2026 and Canada at 1.6%, while volatility has subsided even as uncertainty remains elevated. That stability is market-led. The IMF’s core warning is that calm can coexist with still-elevated uncertainty, increasing vulnerability to abrupt repricing when confidence shifts. For North American banks, this reinforces that liquidity conditions, market functioning and collateral dynamics can matter as much as underlying credit performance. Fiscal and trade dynamics amplify these risks. The interaction between sovereign financing needs, market-based intermediation and persistent trade fragmentation raises the likelihood of non-linear transmission through US asset prices and dollar funding conditions, shaping resilience entering 2026. Read the the full publication.
