Outlook 2026: spectacular spending, unspectacular growth. Emerging markets and gold in focus

Can the global economy prove as resilient in 2026 as it was in 2025? While a significant increase in US import tariffs has not derailed global growth in the past year, we see little room for complacency looking ahead. The impact of tariffs will be felt as strongly in 2026, slowing the global trade in goods, denting profits for businesses across the world, and raising costs for US consumers. In addition to the impact of import levies, policy uncertainty, fragile geopolitics and tense US-China relations look set to persist. 

Yet there is a safety net in place. Fiscal policy remains expansionary in many major economies, from the US to Japan and much of Europe. China continues to drip-feed stimulus. Monetary policy will provide support, with interest rates falling in the US and UK, and eurozone and Swiss rates on hold at neutral levels. The outlook in emerging economies has also improved, with fewer structural imbalances, strengthened foreign reserves, institutions and corporates. We therefore believe that soft global growth will be sustained and will not morph into a contraction in any major economy in 2026.

We believe that soft global growth will be sustained and will not morph into a contraction in any major economy in 2026

The US economy: exceptional for the wrong reasons

We expect below-trend and below-potential US growth in 2026. Business investment should remain strong, particularly in AI, as should government spending. The Federal Reserve’s interest rate cuts from restrictive levels should boost manufacturing activity and could finally see a struggling housing market bottom out.

Yet the ‘wealth effects’ from rising stock markets and a falling dollar that consumers enjoyed in 2025 are unlikely to be repeated. Higher unemployment and above-target inflation should weigh progressively on real incomes, weakening consumer spending, the principal driver of growth.

Although the cost of tariffs is currently being shared among US businesses and consumers, with foreign exporters also playing a minor role, we expect consumers to end up absorbing the lion’s share in 2026. Even if the Supreme Court rules against some of the current US tariffs, we would expect them to be quickly reimposed using different legal justifications.

The US economy remains exceptional, but in a very different way from the post-Covid era. In 2026, the impact of rising tariff costs, political pressure on institutions, growing budget and trade deficits and wealth inequality could be more clearly felt.

The US economy remains exceptional, but in a very different way from the post-Covid era

More economic stability in Europe and China

In contrast to a volatile US policy environment, the outlook in Europe is stabilising. We expect the eurozone economy to expand around its potential rate of 1% in 2026, with interest rates on hold and inflation remaining roughly in line with target over the year.

The tailwind of prior monetary easing, stronger credit growth and a fiscal boost from Germany should offset some of the anxiety around US tariff impacts. This could, in time, boost consumer sentiment, prompting cautious Europeans to spend some of their excess savings and so support growth. 

In China, growth has also stabilised, thanks to periodic injections of policy support which we expect to continue in 2026. The impact of tariffs and a drive to remove unproductive capacity in the economy should continue to weigh on investment, while we expect ongoing challenges for authorities to raise domestic demand without more forceful stimulus measures, including direct support for consumers.

This leads us to expect a gradual slowing in Chinese growth to just above 4% in 2026. Policy-ensured stability in China should provide an anchor for other economies in the region, even if it is not enough to lift our outlook of unspectacular global growth.

Policy-ensured stability in China should provide an anchor for other economies in the region

Investment strategy: emerging markets and gold in focus

A combination of soft growth and a less restrictive monetary stance creates a reasonably good environment for financial assets. Importantly, it also points to a softer US dollar, as interest rate differentials with other regions narrow and global risk appetite improves. For investors, this scenario offers opportunities across equities, emerging markets, and real assets such as gold, even as the fixed income outlook remains constrained.

related content.

investment insightsgeopolitics

investment insightsgeopoliticstrade warelectrification

Investing for stability in an unstable world

October 30, 2025

investment solutions.

learn more

Emerging market revival

Emerging markets stand out as a bright spot as we enter 2026. The region’s equity markets outperformed in the latter part of 2025, and we expect this trend to continue. The recent US-China trade détente has reduced near-term geopolitical risk and improved sentiment toward global trade flows. This, combined with a weaker US dollar outlook, still undervalued emerging market currencies and a resilient growth premium over developed markets, sets the stage for an emerging market asset revival.

Emerging markets stand out as a bright spot as we enter 2026

Historically, periods of dollar weakness have coincided with strong performance in emerging market equities and local currency bonds, as capital flows return and currency volatility subsides. We think both should benefit, supported by higher yields and a higher growth potential than in developed markets. Emerging stock valuations have risen in 2025, but remain at an attractive discount to global equities, especially considering their higher earnings growth potential.

Developed market sovereign bonds should underperform those in emerging markets. We still expect a disinflationary trend across economies in 2026, but we do not expect the yields on long-dated developed market sovereign bonds to fall far given debt and fiscal concerns. The US bond market will need to contend with inflation risks driven by tariffs. Only the UK market is likely to offer some better relative performance, as the Bank of England will need to ease policy more than in other developed economies, improving return prospects for UK debt.

Growth at a reasonable price

Global equities have delivered solid returns so far this year, but leadership has been dominated by US technology and AI-driven firms. While these sectors remain structurally attractive, valuations now appear elevated. In 2026, we favour broadening exposure to regions and sectors that combine growth resilience with reasonable valuations. In general, dividend-paying equities offer stable income in a context of unspectacular growth. Quality dividend stocks in sectors like healthcare provide both yield and defensive qualities while benefitting from demographic and innovation tailwinds. Commodity-linked equities, in particular materials, have also lagged the broader market in 2025, and offer comparatively better value now. We think the sector is likely to be further supported by infrastructure investment and a broadening of AI-related spending in 2026. Utilities should also continue to offer attractive exposure to electrification and AI, with reasonably high dividends.

We favour broadening equity exposure to regions and sectors that combine growth resilience with reasonable valuations

Tight spreads to limit corporate bond returns

Corporate bond spreads – or the yield offered on top of sovereign bonds – have further narrowed in 2025. While we do not anticipate higher default risks thanks to solid corporate fundamentals, investment-grade and high-yield corporate bonds are not attractive at current spread levels. Select pockets of value may emerge over the course of 2026, requiring a more tactical approach to corporate bond investments..

Gold in focus

Gold’s ascent in 2025 has been extraordinary, as demand from central banks remained strong and geopolitical uncertainties persisted. We believe there is scope for gold demand to rise further. The structural pressure on the US dollar is also playing a role in this trend. The world has been shifting from a US-led system to a more multipolar one. President Trump’s policies have exacerbated this phenomenon and the US dollar has been losing ground as an anchor. This has been reflected in a fall in the dollar’s share in global foreign exchange reserves in recent years. A dedicated allocation to gold should therefore continue to help shield portfolios from volatility episodes. Should the Fed cut policy rates as we expect, we see real US interest rates declining and the dollar depreciating. While these factors did not play a decisive role in gold’s recent rise, they should support investor demand and facilitate further price gains in 2026.

We believe there is scope for gold demand to rise further

Staying disciplined

A moderate pace of economic growth, more accommodative monetary conditions, and a weaker dollar create fertile ground for risk assets, even as we see limited upside from fixed income. By seeking value opportunities, embracing emerging markets, and diversifying further through real assets, investors can position portfolios for resilience amid inevitable risks and potential shocks.