2026 outlook calls for recalibration

THE RENOVATION

- Mohamed A. El-Erian

Donald Trump and Xi Jinping talk in Busan South Korea, on Oct 30, 2025.

(REUTERS)

For global markets, 2025 was defined as much by what did not happen as by what did. The year offered a masterclass in the power of a single narrative, with massive, concentrated bets on Al masking various other unanswered questions. Yet as we move further into 2026, the AI narrative is unlikely to prove strong enough to continue overshadowing other lingering uncertainties, many of which reflect deeper structural shifts. For investors, central banks, and governments alike, the situation demands adaptation.

Many economic developments in 2025 served as a direct rebuke to the conventional wisdom. Despite dire warnings of a “lose-lose-lose” trade war, US tariffs did not trigger a stagflationary spiral or provoke as much retaliation as many expected. Even more surprising was the adaptability of China's export engine. By rerouting trade through non-US partners, especially in Europe and Asia, China achieved a record-breaking trade surplus exceeding USS$1 trillion.

In the United States, consumers also proved extraordinarily resilient, especially low-income households, which continued to spend despite high prices, mounting debt, and growing anxieties about jobs and incomes. When combined with investors’ willingness to throw money at “anything AI” and to continue financing large deficits in the US and other advanced economies, this resilience fuelled a robust US economic expansion and generated beneficial spillovers for the global economy.

With third-quarter growth accelerating to 4.3%, the US economy crushed expectations.