While the outlook for the Canadian bank sector is being dimmed by ongoing U.S. trade policy uncertainty, the global outlook is being bolstered by stronger-than-expected economic growth, says Fitch Ratings.
In a report published Thursday, the rating agency said it has bumped up its global growth forecasts for this year and next year, as soaring AI investment, and the resultantly-robust equity markets, are offsetting the negative impact of higher tariffs on the U.S. economy. European growth is holding up better than feared too.
Fitch’s interest rate outlook includes expectations for “close to neutral” rates in the U.S., U.K. and Europe in the year ahead. It expects two more rate cuts from the U.S. Federal Reserve Board by next June, and three more rate cuts from the Bank of England in 2026, while the European Central Bank (ECB) is seen holding rates steady next year.
Against that backdrop, Fitch has a “neutral” outlook for the global banking sector in 2026, which implies that conditions will remain largely unchanged from 2025 — and the rating outlooks for the bank sector in most developed markets are stable too.
“Consistent with our slightly improved economic growth forecasts, lower interest rates in most countries, and mostly neutral sector outlooks, we expect asset quality to remain fairly benign overall, but this may vary by country or loan segment,” it said.
Canada is an exception, Fitch noted, with the heightened risk from U.S. tariffs resulting in a “deteriorating” outlook for the Canadian banks.
France also has a “deteriorating” outlook due to “prolonged political uncertainty” in that country, while Spain and Japan both have “improving” outlooks, due to anticipated improvement in business and market conditions for those countries.
For the global banking sector, “Economic growth should also underpin corporate loan demand, which was dampened in 2025, particularly in Europe. U.S. loan growth will likely be supported by lending to non-banks,” it said.
At the same time, Fitch revised its bank capital forecasts down for 2026.
“Loosening regulatory capital requirements, notably in the U.S., and expectations of loan growth in some markets mean many banks are likely to lower their target capital ratios,” it said.