What is your outlook for the global economy in 2026?

There's always uncertainty when we're talking about the growth outlook, but I can say it does appear to be a lower level of uncertainty than the one we experienced in 2025, where there were really just quite a remarkable range of policy choices being made and sometimes reversed and so on. And so this looks to be a slightly simpler year from that regard, but it is still certainly difficult to predict the future.

Our best assessment is that it is a year that's looking somewhat up. We think there's room for at least a bit more economic growth in 2026 compared to 2025. We've been in the business of mostly revising our forecasts upward, even relative to expectations just a quarter ago. And for the most part, at least for the major markets, we are also, I guess you could say, slight optimists. We are a bit above the consensus as well.

So feeling reasonably good about 2026, in part because some of the headwinds look to be fading. And so, as an example, we are actually seeing some tariffs ebb a little bit right now. But of, I think, even greater importance, just the tariff blow was increasingly being absorbed. And so, it becomes a bit less relevant to future growth prospects. It's already, I guess you could say, baked into the cake.

The government shutdown in the U.S. has been resolved. We're hopeful there isn't another one in the immediate offing. And so that's a helpful move as well. But even more importantly is just we do see a significant number of tailwinds. And so you start with the obvious ones which would include rate cuts. And so central banks across a fair swath of the developed world either have been in the business of cutting rates recently or are still in that business.

And so that is lending a bit of a lagged helping hand to 2026 growth. You see a certain amount of fiscal stimulus being delivered as well in the context of very much the U.S. delivering stimulus, but Canada as well, and Germany and Japan and the list goes on. And so that also provides, we think, an important support, although it does certainly raise questions about the size of fiscal deficits from a fiscal standpoint.

We see the fact the stock market has gone up so much and whether or not it continues to rise, it has made a lot of households wealthier, and they can be expected to spend a fraction of that money as well. And then we do believe that there is still some room for artificial intelligence CapEx to rise and perhaps even for some sort of productivity boost to emerge from that.

And so the net to us, it's not spectacular growth. But it is we think, potentially pretty good looking growth and growth that can accelerate somewhat over the span of the year from perhaps a fairly cautious start to a more robust end.

As tariffs continue to impact consumer prices, is inflation still risk?

Inflation is certainly too high right now. Most countries it is not at or below targets. It is some distance above and with a particular emphasis on the U.S., we can say that the tariffs play a central role in that. We've seen very much imported goods become more expensive. And that has led its way into consumer inflation. And so, inflation is higher from tariffs. I can say perhaps inflation in a number of, in particular, non-U.S. markets, probably also somewhat higher just from some lingering scarring, you might say, from the inflation shock of a few years ago.

And so having experienced seven, eight, nine percent inflation rates briefly, we just haven't kind of got that genie fully back in the bottle. So, here we are with inflation still running higher than we would like. I can say that there have been, thankfully, some helping hands to the story. And so, for instance, the fact that global oil prices are lower has been very useful for preventing inflation from being even hotter.

I can say that the fact that shelter inflation, often home prices and rents, are fairly I wouldn't say tame, but perhaps declining or at least stable in a number of markets has also been helpful for preventing inflation from getting too high. So let's be clear. This is not a replica of 2022. That was the eight, nine, 10% inflation world.

Right now we're sitting in more of a three percent inflation world. And we'd like it to be more like two. We think there is some room for progress over the next year. You know, the tariff hit is increasingly being absorbed in a way that we don't necessarily need to see prices continuing to rise at an outsized rate going forward.

And so we think there is room for some improvement going forward and over the span of 2026. I think the twist, though, is we're not convinced we will see inflation return all the way to central bank targets. And, some of that is just some of that scarring I mentioned is still lingering. And so it's just harder to get down to that 2% kind of number.

And particularly with large fiscal deficits and so on, perhaps governments aren't even sure they want to achieve that. And then I guess the other element is just here we are seeing central banks cutting rates. And you could argue that is a little bit premature given where inflation is. And so with interest rates falling, it's maybe a bit harder, for inflation to fall.

It's similarly the case that with economies that are picking up the pace, it's not obviously an environment where inflation returns tidily to 2.0%. So some improvement. Not a problematic level in particular, but neither completely normal.

What are the macroeconomic implications of the AI boom?

Artificial intelligence would appear to be the theme of our time. And it has economic implications potentially as well. And I can say just in a very short term, very narrow sense, one of the most obvious initial effects is just there are these big technological firms spending a lot of money building out their models, data centres being built. And so, we see artificial intelligence-related capital expenditures quite large, hundreds of billions of dollars spent and quite a remarkable growth rate.

And so, for instance, in 2025, it looks like that kind of spending in the U.S. will have grown by more than 50% compared to the prior year. Looking forward to 2026 and beyond, it's not clear that growth rate can be sustained, the current analyst thinking is it might be a 30% plus growth rate for 2026.

So a deceleration, but still growth, still quite remarkable growth. And hat is still a support to economic growth in 2026. And it's one of our tailwinds. And so, we are looking for a further helping hand from that. Certainly there have been questions raised recently about AI in the context of o bubbles and concerns.

Perhaps it's too much too soon and that sort of thing. And so I guess I would say, the amount of money being spent, loosely speaking, arguably makes sense. It's a huge opportunity, obviously, this  potentially revolutionary technology. Doesn't look a lot like the late 1990s tech bubble in the sense that valuations are not as stretched and companies still have some free cash flow that hasn't been deployed and they’re big, broadly profitable businesses.

And, you know, the technology at the end of the rainbow is quite an exciting thing. And so, it's not clear that it is a bubble. I would say, even if it was, we heard a lot of bubble talk in the mid to slightly late 90s, in that particular era, and Greenspan talking about irrational exuberance in 1996.

And you had four more years of irrational exuberance before there was any kind of reckoning. So even if it were a bubble, it's not clear it will be resolved in the near term. Even if it were a bubble, it could be what I would call, in an economic sense, a useful bubble in the sense that it is one that really reveals and accelerates this important technology for the world, whether the companies doing the spending necessarily are the ones profiting off of it. Again, we don't think it's a bubble, but nevertheless, we are reasonably comfortable, I guess, with where that stands right now. And then not to lose sight of the main prize, though, which is the whole reason everyone's excited about AI is the potential for massive productivity gains.

And those gains accrue to everyone and every company and every sector and every country, perhaps. And that's the real prize. We think perhaps we're starting very tentatively to see some productivity gains achieved from that. We are fairly optimistic, thinking that indeed there are great benefits to be enjoyed here. And fairly substantial productivity growth. So we're we're fairly optimistic on that over the long run.

And, you know, there's certainly a question about the effect on labour and whether we will see unemployment go up. And so something that we're watching for very closely. We've seen little bits of that. It's not clear it's a major force at this juncture.

What are the economic implications of a shifting global order?

The global order has been changing on a variety of fronts in recent years. We've gone from a hegemonic to a multipolar era, really over quite a number of years now. And that really involves China now being a competitor to the U.S. and being its economic equal and perhaps being its military equal and so on. And so that's been a big shift.

Often when you are in a multipolar world, you see deglobalization and rising nationalism, and we are getting exactly that. Here we are with all of these new tariffs recently on board and so, that generally is an environment in which global economic growth runs a little slower because tariffs are getting in the way and inflation tends to run a little bit hotter, which we're seeing as well.

I can say on the tariff front that we've seen U.S. tariffs seemingly steady somewhat. And actually, if anything, ebbing a little bit as the U.S. carves out some cost of living considerations and removes some foodstuffs and strikes some deals with countries like Brazil and Switzerland that didn't have deals before. So the direction of travel is slightly favourable, but still very significant tariffs and question marks that remain on that front. We are also seeing a different global order shift, which is from a rule-based order to a power-based order.

And so the world's biggest, most powerful countries, and I'm thinking the U.S. and China and perhaps Russia, are throwing their weight around more than we're used to. And so it is a good time to be big and powerful. It is, I guess definitionally not so good a time to be smaller and less powerful. And so it has become a more dangerous world.

And it is not a surprise at all that we are seeing military spending rise quite considerably across a large fraction of the world. And that's a trend that probably continues for some time. And if you're looking for a silver lining, well, that's a form of economic stimulus, I guess you could say. But of course, equally it means bigger deficits and more debt.

And  often the fiscal multiplier on military spending isn't as generous as some other forms of government spending. Maybe another change in the global order is just that the U.S. is stepping back to some extent and we're perhaps seeing I would see a slight diminishment, not the elimination, but a diminishment of U.S. exceptionalism.

And so the U.S. has been this very special place that has grown much more quickly and attracted huge amounts of capital and seen its stock market outperform and often had a very strong dollar and so on. And so we're now seeing, we think, the potential for a slight erosion of that. And so the dollar has declined somewhat and we think perhaps has some scope to decline further.

The U.S. economy probably still set to be among the faster growing countries, but maybe not lapping the rest of the developed world as it did in recent years. I can't say we're actually seeing too much of a capital outflow in terms of the actual flow of money. But on the net, you might say the U.S. is making a conscious decision to step back a little bit.

And so we are seeing some consequences of that. And that would include perhaps a steeper yield curve, alongside that weaker dollar.

What is the outlook for the Chinese economy?

So China certainly isn't helped by new U.S. tariffs. And so we've seen a diminishment of trade between the world's two superpower economies. But China has shown itself to be very nimble and capable of pivoting in that trade. And so it's actually exporting an awful lot, really to the rest of the world in a way that suggests its economy has been somewhat protected from those new tariffs.

You know, it's hard to be an extreme bull on China right now because there are some real structural economic challenges. The demographics aren't very pretty, and there is arguably too much debt. And the housing market is still in bust mode. So I don't want to oversell China. But for all of that, and I've led with the bad news, we are feeling cautiously optimistic about the Chinese economy.

And we do see, we think, some fairly important things are happening. Obviously, there's an opportunity on the global stage from a geopolitical sense, just as the U.S. steps back to an extent.  Similarly, we can say that this is a time when big countries naturally can be expected to thrive, given that it's now this power-based order.

But equally, we do see within China that the government is now favouring the private sector again. And so that unleashes some of those animal spirits that lets the economy grow more quickly. We see productivity growth moving still quite well. So people focus on the economy having slowed over the years. But a lot of that is just no population growth.

If you actually look, the average Chinese person is still enjoying 5% plus productivity growth per year. They're getting more prosperous. They are feeling as though they're progressing in the world. And so that is still a pretty healthy place to be. And maybe to me, the most exciting and important thing about China is just that the country is clearly innovating.

And so classically poor countries are copycat economies, and that's how they catch up and so on. China is now seemingly at the technological frontier, and it is proving it is capable of innovating. And indeed, in some ways, it is leading the world. And we look at electric cars and China makes more cars, in fact, of all stripes than any other country in the world, and solar panels and batteries and drones and increasingly pharmaceuticals as well.

And so it's proven it can innovate and that is the recipe for a long period of sustained, relative economic success. And so as we look at China, sure, it's not the eight and 10% GDP growth rates of prior decades, but we think the country is capable of pleasantly surprising versus the consensus and can still grow at a 4% plus growth rate, which, you know, easily beats any kind of developed country at a bare minimum.

What are the current trends shaping the Canadian economic landscape?

It's been a challenging period for the Canadian economy in 2025, and a big part of that has been tariffs. And an even larger part has arguably been the uncertainty around what U.S. public policy might do to Canada. And so the economy has certainly underperformed over the year as a result of that. It would appear that perhaps the economy has recovered somewhat and has been accelerating somewhat toward the end of 2025.

We're a little bit skeptical that the recovery is as good as the official numbers look, but it does appear that there's been a bit of recovery, perhaps, as just that level of incredible, almost existential uncertainty has diminished. And so we think that we are entering 2026 with at least a little bit of economic growth. And it would appear that recession at a bare minimum, has been avoided.

We're assuming it's still fairly cautious going for another quarter or two. But we do believe that there is room for some acceleration over 2026. And for a familiar set of reasons. The Bank of Canada has been in the business of rate cutting. And as much as it's uncertain just how much more of that we will get in 2026, there is a lagged benefit from the cuts that took place, in particular, over the latter half of the prior year, and so that's a very helpful thing.

The latest Canadian budget was undeniably a stimulative budget, both in the sense of more money sloshing around, but also some efforts to incrementally lower some tax rates and to reduce the amount of red tape around, in particular, some of the larger infrastructure and resource projects. And so we do have something of an economic acceleration. I don't want to oversell that, exactly. I think it's important to recognize that perhaps just the speed limit on the Canadian economy probably isn't that high right now. Given that immigration is essentially ground to a halt for intentional reasons, just to unwind some of perhaps the excesses from prior years, but nevertheless, that does put a bit of a governor on how quickly the economy can go on.

The workforce isn't naturally going to be rising all that quickly. I think the source of profound uncertainty for Canada remains the USMCA trade deal, which is set for renegotiation in 2026. And I think it's quite reasonable as a base case to think that it will be successfully renegotiated and probably formalizes some of the existing sector tariffs the U.S. has imposed on Canada such that the world doesn't change too drastically coming out of it. But I will say, I suspect we will see some pressure tactics applied to Canada. So there will be some moments of concern, shall we say. There may be some extra concessions Canada makes, and I'm not expecting the existing USMCA to be exactly as it was going into 2025, which is to say, a truly tariff free environment. And so Canada will be forced to continue grappling with that, I suspect.