House view | Outlook 2026
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1.Going into 2026, the global economic backdrop should be supportive for growth. We expect the divergent, K-shaped economy to close from the bottom.
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2.AI has been a key growth driver but there is a risk it could turn from a gift to a curse.
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3.The 2026 portfolio is positioned to benefit from a closing of the gap. But having protection against a negative scenario will be a must to ensure portfolio resilience.
Context
Going into 2026, the global economic backdrop looks supportive for growth. We are past peak trade uncertainty, while monetary and fiscal policy are broadly supportive. So far, we have seen a story of divergence, especially in the so-called K-shaped economy in the US. The wealthiest Americans have prospered, benefiting from wage growth and market gains driven by artificial intelligence, while lower-income groups have struggled. Other areas of the economy have experienced divergence too: growth in capital expenditure and stock market returns have both been AI-focused, with business investment and stock performance in other sectorslagging.
In 2026, we expect this divergence to narrow. The benign outlook should allow the benefits of US economic expansion to broaden across income groups and sectors, allowing the K to close from the bottom up. Stimulative policies are likely to benefit consumers. In the US, the Republican party is expected to push policies to “Make America Affordable Again” ahead of mid-term elections in 2026.
Fiscal measures are likely to benefit consumers, particularly those on lower incomes. Across the Atlantic, Europe is on the move, with Germany embracing debt and defence. Moreover, all 27 European Union member states have backed a 2028 target date for completing the single market. In Asia, Japan has fiscal plans of its own and China is seeking to regain momentum after a real estate downturn. Across major economies, supportive monetary policy can be expected to add fuel to the fire.
Vulnerabilities
While AI has been a key growth driver, there is a risk it turns from a gift to a curse. The resilience of the US economy masks vulnerabilities: the “circularity” of tech giants investing in each other; the growing big-tech debt burden; the need for AI capital expenditure to generate a return on investment. If the AI-driven momentum were to falter, the wealth effect that has buoyed consumer spending and capital expenditure could unwind, and US economic resilience with it. The K-shaped economy would close from the top. This could lead to a recession.
