Global macroeconomic outlook: a cautious call for growth ahead

By David Page, Head of Macroeconomic Research

19 December 2025

The global economy is passing through a period of peak vulnerability, exacerbated by the recent US shutdown and softer Chinese domestic demand. 

Disruption may have been an abiding theme of 2025, but as we look to the next twelve months, investors have reason for cautious optimism, with signs that growth looks set to gather pace. We are forecasting similar annual growth in 2025 and 2026 for most economies, with faster growth predicted in 2027. 

While the medium-term outlook looks positive, we remain wary of short-term risks that could derail activity – particularly around credit events and any change in AI sentiment. The US would be particularly vulnerable to any pullback on either of these fronts. 

Signs of acceleration

Key economies now enjoy a more stable international trade environment, primarily following Presidents Trump and Xi meeting, which restored some calm to markets after a highly volatile six-month period for US-China relations. 

The October trade truce provides some confidence for next year, and recent policy shifts such as lowering tariffs for Switzerland may signal the Trump Administration adopting less aggressive international trade tactics, as domestic political pressure on cost-of-living increases. Of course, US tariff policy could change further, and dramatically, if the Supreme Court upends the current framework early in the new year.

Domestic political drivers in major economies provide a tailwind for growth. The US election cycle is now looking to next November’s midterm elections. The Trump Administration is likely to adopt less disruptive measures in the coming year to foster economic activity before voters head to the polls.

China is entering the first year of its 15th Five-Year Plan, traditionally a growth phase. Despite our expectation that China’s annual growth target for 2026 will remain firm, growth may prove a challenge within an economy grappling with deflation and negative demographic pressures.

Tight post-pandemic monetary policy has eased, and we have seen real wages rise globally. Combined with wealth effects in some regions such as rising stock prices, house prices or both, this environment is conducive to household spending and a revival in investment spending. 

Strong AI tech investment has the potential to spill into the broader economy, while support from corporate earnings may deliver higher capital expenditure. For the US, this should join a rebound in non-tech investment, something we are also likely to see more widely. Evidence suggests rising investment in Japan and Germany, with Germany supported by fiscal spend that could see ripple effects further across the Eurozone.

What to watch

The medium-term outlook looks positive, but investors need to remain vigilant about the very real short-term risks that could derail growth activity. 

Two are uppermost in our minds: further credit events on the heels of First Brands and Tricolor Auto Group; and a reversal in AI sentiment. The US would be particularly vulnerable to any pullback in AI sentiment or credit shocks. 

Supply capacity issues are likely to emerge in an accelerating global economy. US limits reflect tariffs and tighter immigration policies. Japan’s economy operates at close to full capacity and has ongoing demographic challenges. Even the Eurozone has little material spare capacity.

Lack of obvious capacity underpins the demand for investment spending, but the outlook for productivity will determine how fast economies can expand without reviving inflation. Strong US productivity growth has been an exception and one we expect to soften in the first half of next year. It is likely too soon to see AI related gains now, but these could plausibly emerge from 2027.

The current loose global financial conditions suggest limited scope for rate cuts, and upward pressure for longer term rates would impact both growth and fiscal outlooks. A rise in global rates would renew concerns about fiscal stability. 

Our research suggests that the US will maintain fiscal stability in the medium term (in the short term, tariffs offset the fiscal bill tax cuts). Germany is increasing fiscal spending aiming at growth enhancing capital expenditure and infrastructure, but there are risks this will buffer day-to-day spending. Across broader Europe, the lagged impact of higher rates in recent years will increasingly be seen in higher debt interest costs.

What does this mean for asset allocators?

As always, the only certainty is uncertainty.

Signs may point to brighter skies of growth ahead but the disruption and vulnerability weathered by the global economy in 2025 has underscored how quickly markets can move, and the value of prudent diversification and international exposure for AustralianSuper as we build the retirement savings of more than 3.6 million members. 

That diversification is essential as the Fund grows at pace – we’re projected to reach well over A$500 billion in funds under management by 2030 and A$1 trillion by 2035. For a Fund of this scale, capturing diversification and identifying the best investment opportunities that deliver returns for members, particularly in an environment where usual business practice no longer applies, requires internal capabilities and strong partnerships across the globe.

Ultimately, our focus is on helping members achieve their best financial position in retirement, whatever the macroeconomic climate. To that end, we’re positioned to act on data as it emerges, and remain vigilant throughout a time of heightened geopolitical risk. 

Sector deep dive – AI: Revolution, wave or bubble?

By John Normand, Head of Investment Strategy, AustralianSuper

Many investors are concerned that AI is a bubble, meaning that Equities are overpriced and vulnerable to a collapse because AI will fail to deliver enough economic growth and corporate profits to justify the hundreds of billions of dollars spent already and in the future around this innovation.

Innovation waves (Industrial Revolution in 1800s-early 1900s; internet in 1990s; smartphones and social media in mid-2000s) almost always sponsor extraordinary gains in share prices, some of which prove durable and some of which don’t. The gains that endure are remembered as bull markets, such as some of the mega-cap US Tech companies that survived the dot-com collapse. The ones that collapse are remembered as bubbles, such as Japanese stocks in the 1980s.

The reason for this pattern is that successful innovation boosts productivity, economic growth and profits growth, but the magnitude is harder to forecast than the direction because innovative technologies have never existed before. Innovations almost always bring benefits, but we don’t know precisely when the benefits will come or how large the benefits will be. 

We do know one thing, however: betting against innovation as an economic and market phenomenon is rarely, if ever, profitable over the long term.

There have been enough innovation waves, bull markets, and bubbles over the past several decades to allow us to recognise some of the hallmarks of bubbles: extraordinary gains in share prices, extraordinary valuations and extreme leverage (either investor leverage or company leverage). Tighter monetary policy usually plays some role in bursting bubbles, because higher rates make leverage harder to service and strain the earnings of very expensive companies. 

Tech returns have been strong over the past two years and valuations are high, but neither is extreme by the standards of the 1990s or the Japanese equity bubble. Tech companies have started to issue debt to finance their capex expansions, but the levels are very low for most companies relative to their profitability. Most central banks are cutting rates or pausing after this year’s rate cuts too, rather than hiking rates. 

AI doesn’t look like a bubble now, but we are tracking all the relevant indicators to judge if or when the theme looks bubble-like. We continue to manage the funds asset allocation to equities and all asset classes having regard to all relevant factors including the outlook for the economy, the AI theme and market valuations. We have undertaken some rebalancing of the portfolio towards other markets which are more defensive than Global Equities, as the AI theme matures. 

If you would be interested in arranging to speak with David or John, please contact:

United Kingdom/ Europe:
Montfort Communications
E: AustralianSuper@montfort.london

United States:
Kekst CNC
E: kekst-australiansuper@kekstcnc.com

Australia:
AustralianSuper
E: media@australiansuper.com