118 ANALYSIS AND PROSPECTIVE STUDIES CULTIVAR No. 34 The future of the Common Agricultural Policy 1.8% in 2025 and 1.5% in 2026, while in the Eurozone, it is expected to fall from 1.2% in 2025 to 1.0% in 2026. For China, GDP growth is also expected to decline from 4.9% in 2025 to 4.4% in 2026. With regard to inflation, projections indicate a slowdown in overall inflation in the G20 countries, falling from 3.4% in 2025 to 2.9% in 2026 (Figure 1). Core inflation will remain broadly stable in the G20 economies at around 2.6% in 2025 and 2.5% in 2026.2 In the euro area, inflation is expected to remain moderate. The following chapter, "Risks and challenges", discusses the main factors that could alter these projections. This chapter highlights that the risks affecting the economic outlook remain significant. The possibility of further increases in bilateral tariffs, a possible return of inflationary pressures, worsening fiscal concerns or a sharp reassessment of risks in financial markets could result in lower than anticipated economic growth. The importance of establishing agreements that reduce existing bilateral tariff barriers is emphasised, in order to strengthen economic and trade growth and lower inflation. In this case, given the importance of food and energy prices in household shopping baskets, sharp price increases could exacerbate inflation in the short term and result in higher interest rates. Budgetary vulnerabilities are constraining financial conditions and limiting growth. Rising sovereign bond yields reflect high and persistent deficits and historically high levels of public debt, which intensifies refinancing risks and could have negative impacts on the financial system. In addition, high and volatile valuations of crypto-assets pose an additional risk to financial stability due to their growing interconnection with the traditional financial system. The final chapter, "Policy requirements", analyses the economic policy measures needed to address the current challenges, with a focus on maintaining economic stability, controlling inflation and ensuring fiscal sustainability. At market level, there is a clear need for greater understanding between countries in order to promote cooperation and joint working, making trade policy more transparent and predictable. With regard to monetary policy, it is emphasised that financial institutions, and in particular central banks, must maintain close supervision and have the capacity to react quickly to risks to price stability in order to keep inflation well anchored. Governments are asked to exercise fiscal discipline in order to safeguard the sustainability of sovereign debt. Fiscal adjustment policies may be needed to contain expenditure and increase the weight of revenues. It is indicated that efforts are needed, through the implementation of structural reforms, to improve the standard of living of citizens. Credible and well-designed fiscal measures are needed to safeguard the sustainability of public debt and maintain room for manoeuvre to respond to future shocks. Fiscal choices are more difficult with the new demands for increased defence spending and pressure arising from population ageing and climate change. 2 Headline inflation – the rate that reflects the change in prices of all goods and services consumed by households, including food and energy; Core inflation – the rate that reflects the change in prices of goods and services in the economy, excluding sharp fluctuations, such as food and energy.
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