The 2026 economic outlook 

What’s in store for 2026?

Hear from Ric Deverell, Macquarie Group's Chief Economist, as he presents the Australian economic outlook and what’s in store for 2026.  

In addition to the economic outlook, we are pleased to share a report from the Macquarie Wealth Management Investment Strategy Team with their views on the road ahead for investors.

Key insights

We are optimistic on risk assets in 2026 but the path to good portfolio performance is unlikely to be as linear as it was in 2025. Investors need to accept there will likely be more volatility than last year.

Against this backdrop, we highlight important investment themes for 2026.

AI has given but it can also take away:

Next year the global economy should see a modest pickup in growth, but it will feel different to 2025. US productivity is picking up due to cost cutting, restructuring and increasingly the broader adoption of artificial intelligence (AI) so data on output and income will likely be much stronger than employment.

Corporates will take the bulk of the machine-driven productivity gains, which is clearly positive for equities. But AI could also be a double-edged sword. Expectations about AI’s ability to deliver future earnings are extremely buoyant and there is very little margin for error in risk asset prices. If these expectations are not realised, then an otherwise positive outlook could fade.

A more growth friendly White House:

The global economy has absorbed a lot of President Trump’s America First agenda. But the last few months of 2025 showed the US political cycle is alive and well and already there have been signs that poor polling and heavy losses in gubernatorial elections are causing a rethink of economic policy which would likely be growth enhancing.

Midterm elections are scheduled for November, and the rising cost of living is emerging as an election issue. There also seems little tolerance for another government shutdown after the public just endured the longest on record. Negotiations to extend government funding are scheduled once more in January. There is still more of the tariff increase to absorb, so more back-pedalling on tariffs could occur, or government handouts such as a baby bonus, or tariff rebate could come onto the agenda (which again would be growth friendly).

There will also be continued pressure on the Fed to lower rates, particularly after Fed Chair Powell’s term finishes in May.

Inflation is a threat that still lingers:

Central banks are generally happy with the progress made on inflation even though it generally remains above or at the top end of their targets. Until it becomes clear the final leg down will occur it’s hard to see significant further easing, unless the AI trade dislocates. In the US, there are more tariff increases in the pipeline to be passed through, and unemployment rates around the world are still relatively low.

US risk assets are priced for perfection: The growth outlook is good, but analysts are expecting 14% US EPS growth and the market is trading on a 12 month forward PE of 23x (just below the 2000 dotcom peak). There is also stock concentration risk, with the Magnificent 7 accounting for ~70% of the return in the index this year and 34% of the market cap of the S&P 500. This leaves little room for disappointment and the stakes around this are high because the US provides the direction for global markets.

The list of uncertainties is long, so investors should be prepared for increased volatility and be prepared to pivot if the fundamentals change. Diverse portfolios are the best way for investors to navigate this uncertainty, which can be achieved in several ways.

• In equities, we prefer EM, Europe and Japan over Australian and the US. Australia and the US are expensive and highly stock concentrated markets. Europe and Japan are more diversified with a solid earnings outlook with more attractive valuations.
• In fixed income, continue with a barbell strategy by locking in higher ‘all-in yields’ in quality fixed rate credit alongside floating rate senior secured private credit. 
• Private and alternative assets are our preferred strategy for mitigating near-term volatility and protecting against downside risks to growth. Overall, we are optimistic about the growth outlook and are confident that markets will have interest rate support even if that means no further rate cuts. It also seems likely the White House will become more growth friendly than it was in 2025. However, we remain watchful of increased volatility should the current investment and productivity driven AI narrative begin to fade.

- Paul Huxford

Chief Investment Officer
Macquarie Wealth Management