Macroeconomic Outlook 2026 Growth amid uncertainty

The global economy is poised for continued—if cautious—growth in 2026, shaped by evolving policy decisions, delayed impacts from major fiscal and monetary measures, and the transformative rise of artificial intelligence. While trade tensions and geopolitical risks persist, policy support and strategic shifts are creating both challenges and opportunities for investors.

As we move into 2026 after another year of significant developments and surprises, we do so with a sense of cautious optimism. The resilience of markets has been tested, but the strength of the global economy has shone through. Although the narrative around tariffs continues to unfold and the shock of “Liberation Day” is behind us, the direction of travel on negotiations is clear and should contain more upside than downside surprises. With an inflation trajectory trending lower, US policy rates likely to fall as the Fed takes stock of a softening labor market, and policy levers turning stimulative, we have a supportive environment for risk assets.

Although equity markets have enjoyed a healthy uplift in 2025, strong earnings growth in key sectors provides hope that additional gains can be realized. The continued promise of artificial intelligence (AI) and supportive fiscal policies in major economies underpin good prospects in the coming year. We stay constructive on the asset class and maintain a slight preference for US stocks, while recognizing that valuations are rich and market concentration remains a concern—underlining the importance of being selective in exposures. Because global equity portfolios already tend to have a significant weighting in US shares, non-US investors have the additional task of assessing the impact of currency translation. Fiscal and policy developments create a risk that USD weakness may offset gains from US equity holdings for these investors—selective hedging of dollar exposure is worthy of consideration to help preserve portfolio returns.

Within fixed income, we have a preference for government bonds over credit across most advanced economies given tight spreads, the policy backdrop, and ongoing concerns that additional shocks may surface. Beyond the main asset classes, a range of alternative investment types can help diversify portfolios and source additional return avenues. As we have seen, gold and other commodities, income-generating assets, real assets, and private markets have all benefited from investors adopting a broader approach. And while there may be concerns that some of these assets have become more fully valued, there is room for broader adoption, risk management impulses, and improved market access to further support advances in 2026.

We explore these themes and more in our latest Global Market Outlook.

Macroeconomic Outlook: Growth amid uncertainty

Our outlook for the global economy in 2026 reflects the recent evolution of policy decisions and their delayed effects. Notwithstanding the headlines and uncertainty surrounding the initial tariffs announcement earlier in 2025, our base case that such levies would neither cause a recession nor have an outsized impact on inflation has largely played out. The US, and global, economies are set to enjoy continued growth in the coming year, albeit growth that is accompanied by a continuing sense of anxiety.

With most of the easing cycle globally behind us, and as central banks move closer to assumed neutral rates, we are now more cautious about the pace of future rate reductions, and expect more divergence between central banks. For instance, the Federal Reserve (Fed) should have room to deliver up to three cuts in 2026. The Bank of England (BoE) has been a laggard in the easing journey, so some catch-up is expected in coming quarters, and we believe the European Central Bank (ECB) will pause for the near term. Meanwhile, the Bank of Japan (BoJ) may extend its approach of cautiously hiking rates.

In the US, a variety of policy levers will be stimulative, at least in the short term. Monetary policy will continue on its easing path, complemented by fiscal stimulus stemming from the One Big Beautiful Bill Act (OBBBA) and the many tax incentives and refunds triggered in January 2026.

Furthermore, the deregulation agenda is now being prioritized, with a major focus on the financial and energy industries; this should help promote credit creation and sustain low energy prices. Finally, the US administration is considering tools to improve housing affordability, including some regulatory options that could help reduce average mortgage costs.

Fiscal impulse to support growth

Outside the US, policy settings are also shifting towards moderately stimulative measures that could help defray the effects of trade uncertainty. In Europe, Germany’s combined defense-infrastructure program—anchored by its €500 billion fiscal package—is expected to begin lifting macroeconomic indicators in early 2026, particularly through increased public investment and industrial activity. This fiscal impulse aligns with broader European efforts to modernize defense capabilities and digital infrastructure, potentially spilling over into earnings growth in sectors such as Industrials and Utilities. However, the scale of AI investment in Europe still lags behind the US, and overcoming regulatory hurdles remains key to unlocking further upside.

In Asia, both China and Japan are poised to increase net fiscal stimulus over the course of the year. China is pivoting toward policies that stimulate domestic consumption and infrastructure investment, with a strong emphasis on AI leadership and innovation. These efforts aim to counterbalance weak consumer sentiment and high household savings, while also positioning China competitively in the global AI race. Japan, under Prime Minister Takaichi’s agenda, is pursuing fiscal expansion and defense modernization, alongside strategic investments in multilingual AI and hardware-software co-evolution. These initiatives are expected to drive earnings growth and reinforce Japan’s ambition to become "the world's most AI-friendly country for development and utilization."¹ Together, these regional policy shifts suggest a more supportive macro backdrop for global growth in 2026, even as trade uncertainty and geopolitical tensions persist.

The year of delayed policy impact

2026 should see a ‘breather’ on the policy front as short-term focus returns to macro fundamentals. But 2026 will still be “the year of delayed policy impact.” The world is only just starting to grapple with the full impact of US trade, immigration, and defense policies. Positive shocks such as the OBBBA and the relaxation of the German debt brake will also only begin to show up in the data in the coming year and beyond. Whether due to intentional delay in business responses, pre-empting compensatory actions like stockpiling, or the existing cushion of supply in the labor market, the full impact of each policy decision is going to take time to pass through its respective transmission channels to the real economy.

Old structures are evolving to meet shifting trade policy and the AI race

The hard stance adopted by the US on tariffs continues to ripple through the global economy. But deals are being closed, uncertainty has eased, and trade continues to grow (Figure 1).

The uncertainty that lingers around trade centers largely on the renegotiation of the USMCA with Mexico and Canada, as well as trade agreements with major trading partners such as India, Brazil, Taiwan, and Switzerland. However, most of these carry more upside than downside risk as the departure from the status quo would be positive. For the USMCA, specifically, we believe that the US midterm elections in late 2026 will act as a constraint on any negative surprise.

The process of intentional reorientation of global trade relationships through the prism of strategic national interest and security, including how and where AI-related investments are deployed, marks an important shift in the landscape. Whether this negatively impacts either productivity or inflation remains to be seen, with AI’s unrelenting rise adding to the mix. But even 2026 will be too soon to see AI’s productivity impact in a macro sense, although its promise should be clearly visible in a global wave of investments in data processing capacity. The US and China currently lead the race, but the Middle East is trying to carve out a space for itself as part of their strategic economic diversification—this will contribute to the expansion of the regional AI battleground to the sourcing and development of chips, power, and talent.

Geopolitical developments still warrant attention

We had anticipated that a Trump presidency would initially seek to de-risk the international environment. At this stage though, the realities of geopolitical competition with friction points still have the potential to deliver risk-off moves in financial markets. In descending order, the market-relevant potential for the largest short-term surprises stem from: the US-China trade and diplomatic front; Russian provocations and sabotage in Europe; US military confrontation in Latin America; a renewed war between Israel and Iran.

To get a sense of the turmoil navigated by investors in 2025, Figure 2 shows major volatility indices rebased to their January 1 levels. Both bond and equity market volatility (as measured by the MOVE and VIX, respectively) have settled well below the April peaks, mirroring wider perceptions that the shocks of the first half year are fading. However, gold volatility (GVZ) remains elevated albeit retreating from recent highs. Together with the huge jump in spot prices, this signifies that concerns about geopolitical tail risks, as well as worries about higher inflation and fiscal stress, are unlikely to subside in 2026 despite the overall policy “breather.”

It seems almost certain that the shifting sands of global macro and geopolitical relationships will continue, bringing threats and opportunities to all players. Building resilience is the task at hand in this new ecosystem, whether for countries, individual firms, or the world’s investors. The road toward more balanced trade is not smooth.