From the AI bubble to Fed fears: the global economic outlook for 2026 | Global economy

Investors expect global stock markets to continue rising in 2026 despite fears that the AI ​​bubble could burst and concerns about chaos engulfing the US central bank.

Wall Street strategists generally expect the S&P 500 stock index of U.S.-listed companies to continue rising over the next 12 months, but say this could be a volatile year if geopolitical tensions rise and inflation does not decline.

Biggest threats: AI fears, Fed turmoil and private credit

A survey conducted by Deutsche Bank with the participation of 440 investors, economists and analysts found that 57 percent of respondents believe that a decline in technology valuations or decreased interest in artificial intelligence is the biggest risk to market stability in 2026.

The second biggest fear is that Donald Trump will appoint a new Federal Reserve chairman who will cause market turmoil by pushing for aggressive cuts in interest rates.

The US president said on December 17 that he would choose the next Fed chairman soon, and that that person would be someone who believes “very much” in lowering interest rates.

The third most important concern of the participants was the crisis in the private capital market, i.e. private equity, venture capital and private debt.

A survey of fund managers by asset management firm Quilter has found that stress in the private credit market is the least appreciated risk, despite warnings from global policymakers about the dangers lurking in the shadow banking sector.

Swiss bank UBS warned clients that markets “could face new challenges” if the advancement of artificial intelligence slows, inflation picks up again or debt problems re-emerge.

Will the UK stock market continue to rise?

Analysts and retail investors are confident of further gains in 2026 after a strong rally in the UK stock market in 2025 and the FTSE 100 blue-chip index crossing the 10,000 point threshold for the first time on Friday.

AJ Bell investment director Russ Mould said the signs were now quite good, with analysts forecasting 14% profit growth from the FTSE 100 in 2026. Total FTSE 100 dividend payouts are expected to hit a new record of £85.6bn in 2026, eventually eclipsing the peak of £85.2bn set in 2018, according to Mold’s report.

A survey by trading firm eToro has found that UK retail investors are optimistic about the year ahead, with 53% confident the current bull market will continue through 2026.

UK bonds may perform well

Robert Timper, chief global fixed income strategist at BCA Research, said this could be a strong year for UK government bonds, known as gilts, if the Bank of England cuts interest rates faster than other central banks.

He predicted: “UK bonds will enter the second-best performing bond market [in 2026]The dovish is supported by the BoE and fiscal concerns are easing.”

Global markets are expected to rise

UBS predicted that “supportive economic conditions should support global equities, which are expected to rise around 15% by the end of 2026,” with possible gains in the US, China, Japan and Europe.

Double-digit gains are expected on Wall Street. According to UBS’s basic scenario, the US S&P 500 index will complete 2026 with a 12.5% ​​increase at 7,700 points.

While Deutsche Bank’s year-end S&P 500 target is 8,000 points (+17%), Oppenheimer Asset Management is even more optimistic and forecasts a year-end of 8,100 points.

Above-consensus growth and below-consensus headline inflation in the U.S. next year will lift U.S. stocks, according to consultancy Oxford Economics.

UBS also recommends Chinese stocks. “China’s technology sector stands out as the most important global opportunity,” he said. “Strong liquidity, retail flows and earnings (expected to rise to 37% in 2026) should continue the momentum for Chinese equities.”

Ostrum Asset Management predicts that European stock markets will perform positively in 2026, driven by earnings growth. But he cautioned that this depends on companies’ ability to meet high expectations.

But investor Michael Burry, who starred in the movie The Big Short, doesn’t share the optimism, saying he sees a few “bad years” ahead.

Impact of artificial intelligence

After a year in which hyperscalers invested hundreds of billions of dollars in AI infrastructure, the tech sector is likely to shape long-term macroeconomic outcomes in 2026.

Investors will be watching to see whether major AI companies can justify their outsize valuations (following strong stock market gains in 2025) and deliver the productivity gains policymakers are hoping for. Otherwise, valuations could suffer.

While many argue that AI investment remains in the early adoption phase, there are concerns that some players are entrenched in their own vendors and partners. This cyclicality clouds the true financial picture and creates vulnerabilities that could crumble if AI optimism wanes.

While much of the AI ​​focus in 2025 is on chatbots, UBS chief investment officer Mark Haefele said capital spending in the sector could focus on agency AI (systems or “agents” that can perform information work with little or no human direction), physical AI (like robots and driverless vehicles) and AI video.

UBS estimates that approximately $4.7 trillion will be spent on AI capital expenditures globally by 2030; That’s roughly double the $2.4 trillion currently planned, according to more than 40 announcements this year.

Economic outlook

The world economy is expected to avoid a downturn in 2026 despite an increase in trade barriers in 2025. Kathleen Brooks, UK research director at broker XTB, predicts the world economy will remain resilient with little chance of a global recession.

Goldman Sachs analysts told clients the main risks to global growth in 2026 are that a fragile job market triggers recession fears or the stock market questions the value of AI-related revenues.

Goldman predicts “robust global growth of 2.8 percent in 2026,” while predicting that the U.S. economy will “perform significantly better” thanks to reduced drag from tariffs, tax cuts and easier financial conditions. He also expects China to remain in good shape as strong exports outweigh sluggish domestic demand.

UBS believes the global economy is poised to accelerate in 2026, helped by an improvement in business and consumer confidence and extra fiscal stimulus in some advanced economies.

Dutch bank ING said it was “still relatively optimistic” about the U.S. economy and expects looser financial conditions to support growth in 2026.

Deutsche Bank suggested that US midterm elections in November could influence policy earlier this year as Republicans try to avoid losing seats.

Commodities

The oil price will be highly sensitive to geopolitical developments in 2026, such as progress towards ending the Russia-Ukraine war and the conflict in the Middle East. Estimates of oversupply may also push prices down.

Consultancy firm Oxford Economics predicts Brent crude oil will fall to $55 per barrel in 2027, falling from $60 last month to $58 in 2026.

MeCopper prices may increase due to shortage. Deutsche Bank predicts that there will be a “gaping gap” in the copper market in 2026, with prices peaking in the second half of the year.

Central banks and interest rates

Money markets are pricing in two US rate cuts by December 2026, but that forecast depends on the outlook for the US economy and Trump’s selection of the next Fed chair.

Richard Carter, head of fixed interest research at asset manager Quilter Cheviot, said markets would be “on high alert for any erosion of the Fed’s independence”.

A 2026 rate cut in the UK is fully priced in, but some economists predict the Bank of England will cut interest rates at least twice.

What could go wrong?

Experienced city voices know that market consensus will inevitably be wrong; The real question is in which direction this will happen.

Dario Perkins, economist at forecasters TS Lombard, suggested the picture could be stronger than expected.

“The consensus is: 2026 will be just like 2025,” he told clients. “Stable global growth, some disinflation, and monetary policy returning to neutral and staying there indefinitely. Zzzzz.”

He continued: “Where could the consensus go wrong? Our bet is that there will be a stronger recovery in the activity that is driving inflation up and starting the debate.” [in the second half of the year] “It’s about monetary tightening.”

But William Davies, global chief investment officer of Columbia Threadneedle Investments, said “the risks of missteps are piling up.”

He warned: “Growth has been surprisingly resilient, inflation has remained moderate (albeit erratic) and markets have continued to rise. But imbalances are brewing beneath the surface. We believe the year ahead will be defined by how successfully policymakers and investors can navigate the narrowing path.”