As we enter a new year, an investment landscape is emerging that requires a combination of vigilance and ambition. The US – long a crucial engine of global growth – faces institutional challenges and potentially stretched asset valuations. While AI-related stocks remain an essential part of portfolios, investors should be selective to mitigate the risks of any fallout.
In this environment, Europe, China and India may offer broader, more diversified and attractively priced opportunities. Diverging inflation trends – rising in the US but subdued elsewhere – and contrasting monetary policies underscore the importance of regional diversification, especially for those seeking resilient income in a more volatile world. Emerging market central banks have greater policy flexibility, which, combined with potential further weakness in the US dollar, could support emerging market debt.
Private markets are no longer merely “alternative” – they have become foundational to long-term portfolio construction. Within this space, private credit and infrastructure stand out as powerful drivers of long-term value creation, financing the real economy, bridging infrastructure gaps, and enabling structural transformations such as deglobalisation, decarbonisation and digitalisation. Success will hinge on careful manager selection and disciplined underwriting.
We think charting a course through 2026 will require a variety of tools across a range of asset classes, public and private. We are pleased to share the insights of our experts, who outline their key ideas and opportunities for 2026 – designed to help guide you towards new pathways in a rapidly evolving investment landscape.
Key takeaways
- Global growth is proving resilient, with the boom in AI helping to offset problems stemming from tariffs and trade wars. Yet valuations in US tech stocks are richly priced with extreme levels of concentration – careful selection will be critical.
- A broadening of tech spend outside the US could sustain growth and usher in a truly global AI revolution. We believe European equities are currently more attractively priced than many US counterparts.
- Though dynamics vary across regions, inflation is generally under control in key markets. Most central banks are normalising interest rates, with room for more accommodation. This benign outlook remains supportive of carry and could favour well-diversified portfolios.
- Stagflationary risks and a potentially weaker dollar may prompt global investors to rethink high exposures to US assets. While it is premature to forecast the dollar’s demise, there is potential upside for fixed income issued in Europe and Asia, as well as for gold.
- Problems in US non-bank lending have shone a light on private credit. While recognising that credit spreads are historically tight, we do not see systemic risks and continue to forecast strong growth driven by higher interest rates and investor demand.
- Funding the energy transition and digital infrastructure will create opportunities across asset classes, including for investors with the ability to hold long-term and illiquid assets.
Trade war echoes
Christian Schulz
Chief Economist
“Despite the disruptive legacy of trade wars, global growth in 2026 should remain resilient, supported by the AI revolution and proactive policy responses. But the year ahead will test institutional resilience, policy flexibility, and the global economy’s ability to adapt to a more fragmented world.“
The global economy enters 2026 navigating the lingering aftershocks of the trade wars. While tariff escalation has largely plateaued, additional sector-specific measures may continue to disrupt supply chains. The result is fragmentation of trade and capital flows as a smaller supply of foreign goods and rising prices weigh on growth in the US (supply shock), while less US demand for imports leads to overcapacity across much of the rest of the world (demand shock).
Despite these headwinds, global GDP growth is expected to slow only moderately. We forecast growth of around 2.7% (in purchasing power parity-weighted terms) supported by the ongoing AI-driven investment cycle and proactive policy responses in key regions. Inflation dynamics will diverge: US inflation is set to rise above 3%, while Europe and Asia will see more subdued price pressures, allowing for a lowering in interest rates (see Exhibit 1).
Geopolitical risks remain elevated, particularly around Russia and East Asia. Tentative de-escalation in the Middle East offers a rare bright spot. The US and China continue to lead the AI revolution, with spillovers to other regions accelerating from low bases.
Valuations in tech and pockets of under-regulated finance warrant vigilance, but lower interest rates and moderate private sector leverage reduce the risk of systemic financial instability.
US economy: bending not breaking
The US economy is expected to remain resilient, though growth will slow to around 1.5-2%, slightly below potential. The AI investment boom and a modest fiscal stimulus – likely front-loaded ahead of the November 2026 mid-terms – will partially offset the drag from tariffs on real incomes and conventional business investment.
Inflation is forecast to remain sticky, averaging above 3%, with upside risks stemming from tariffs. The US Federal Reserve (Fed), under political scrutiny, is expected to continue cutting rates in 2026, bringing the federal funds target range to 3.25-3.50%. The Fed’s reaction function has become more dovish – meaning it is more likely to cut rates even in the face of above-target inflation – but its institutional independence may be tested by legal challenges and political pressure.
In our view, tail risks are significant:
- Upside risks include AI breakthroughs that could broaden the investment boom, raise productivity, and allow rate cuts in a goldilocks scenario where economic conditions are “just right”.
- Downside risks include labor market weakness spilling over to consumer spending, foreshadowing a recession, with stagflationary dynamics amplified by tariff aftershocks.
- Key event risks include Supreme Court rulings on Donald Trump’s attempt to dismiss Fed Governor Lisa Cook (expected in January) and on reciprocal tariffs. The US mid-term elections are another important event to watch. To bolster political support, the administration may seek to cut taxes or boost spending (or both). This could be accompanied by intensified attacks on democratic institutions, weighing on investor confidence.
Europe: boring is beautiful
Europe is poised for a moderate cyclical recovery, with GDP growth expected at 1-1.5% in 2026. Rising real incomes and low unemployment should support consumer spending, offsetting industrial weakness linked to global trade tensions.
Inflation is projected to remain below 2%, enabling the European Central Bank (ECB) to cut rates by 25 basis points to 1.75% in the first half of the year. Fiscal policy will provide a modest boost, lifting growth by 0.4-0.5%, led by Germany.
The UK faces a more challenging path. The likelihood of higher taxes and lower spending – amounting to a fiscal consolidation of just up to 1% of GDP – may depress growth below 1%. But the improved macro stability should pave the way for Bank of England (BoE) rate cuts to 3%. The ECB and BoE are major central banks not under the yoke of heavy political pressure, strengthening the euro and sterling relative to their peers.
With no major elections scheduled in the region, Europe can press on with a decisive response to geoeconomic challenges – Russia’s war in Ukraine and the fragmentation of global supply chains due to tariffs, to name just two. However, political gridlock in France ahead of the 2027 presidential election casts a large shadow over the continent’s ability to act.
Growth in Europe may prove stronger than expected if households start spending rather than saving. Other upside risks include a potentially bigger-than-anticipated lift to growth from government spending and productivity gains if the tech wave reaches European shores.
Asia: divergent dynamics
In Asia, both growth and inflation remain under pressure. Conventional trade is facing headwinds from US tariffs, but the tech cycle is supporting investment and intra-regional trade. Inflation may rise modestly, but driven by base effects only rather than by demand.
Many central banks have already eased policy, and further limited rate cuts are expected in the first half of 2026, including in China. Further support could come from targeted fiscal stimulus.
China’s growth is likely to moderate under pressure from US tariffs and still-subdued domestic demand. Anti-involution policies – designed to address excessive and damaging competition – may help alleviate deflation, but overall price pressure is muted. The government will encourage consumer spending, but high-tech manufacturing will still be prioritised as the key growth driver.
Japan continues its path of orderly reflation, whereby it seeks to bolster growth through government stimulus. But headline inflation is likely to ease towards 2% as temporary factors fade. The Bank of Japan will likely face political pressure not to raise interest rates too much to risk choking off the recovery. We think one or two hikes may be sufficient. However, Abenomics-like fiscal expansion under Prime Minister Sanae Takaichi could add to medium-term price pressures.
Resilience in a more fragmented world
Despite the disruptive legacy of trade wars, global growth in 2026 should remain resilient, supported by the AI revolution and proactive policy responses. Inflation will diverge – rising in the US, while staying subdued in Europe and Asia – shaping a landscape of asynchronous monetary policy. The year ahead will test institutional resilience, policy flexibility, and the global economy’s ability to adapt to a more fragmented world.
What is the one thing investors should look out for in 2026?
Rapid technological advances could spread investment from the tech sector in the US and parts of Asia to other industries and economies. This boost, alongside monetary and fiscal easing in many places, should help sustain the global economy’s resilience amid sustained challenges to its key pillars, such as central bank independence and liberal trade.
1 Source: The Hindu, 4 March 2024
2 Source: Reuters, 4 September 2025
3 Source: AllianzGI, Preqin (Private Markets in 2030 | Preqin)
4 Ibid.
Past performance does not predict future returns. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency.
This is for information only and not to be construed as a solicitation or an invitation to make an offer to buy or sell any securities. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. The data used is derived from various sources and assumed to be accurate and reliable at the time of publication. but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or willful misconduct. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted, except for the case of explicit permission by Allianz Global Investors.
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