AllianceBernstein opens its 2026 outlook with a deliberately grounding observation: “the global economy does not change just because the year does.” The reset of the calendar is not a reset of macro conditions. Instead, the firm characterizes the start of 2026 as a continuation of late-2025 dynamics—an expansion that is “not robust by historical standards,” but nevertheless “sufficient to keep financial markets largely on track.”
The defining feature of AB’s baseline is balance. Upside and downside risks are described as “fairly balanced: a meaningful acceleration is just about as likely as a meaningful deterioration.” That framing sets the tone for a report that is not about bold regime shifts, but about fragile resilience, policy trade-offs, and second-order effects that markets may be underpricing.
The Macro Picture: A Narrow Path Between Acceleration and Disruption
AllianceBernstein outlines three planks supporting a potential acceleration in 2026:
- Artificial Intelligence investment, which “boosted growth, especially in the US, in 2025,” and could lift productivity if returns materialize.
- Adjustment to a more settled tariff regime, reducing uncertainty and potentially unlocking delayed investment and consumption.
- The accumulated impact of monetary easing, as global rate cuts continue to filter into the real economy.
Yet AB is careful to stress that none of these forces is guaranteed to deliver clean upside. The downside risks are equally structural. Central banks are navigating what AB calls “a confusing world,” particularly the US Federal Reserve, which faces “a slower labor market and sticky inflation, making the best choice unclear.”
More fundamentally, the report repeatedly returns to one theme: AI is both the upside case and the principal risk. History suggests productivity gains arrive with “a significant lag,” raising the risk that markets may “not be patient enough to wait for evidence—in the form of profits—to support the valuation of many AI-related assets.” At the same time, if AI does deliver productivity gains quickly, the cost may be “near-term disruption to the labor market.” In AB’s words: “If businesses hire computers and fire people, the economic cycle could turn.”
This duality—AI as growth engine and destabilizer—sits at the heart of the entire outlook.
The United States: AI, Labor Fragility, and the Fed’s Tightrope
The US remains the epicenter of both optimism and vulnerability. AllianceBernstein notes that tech-related investment was “a significant contributor to growth in 2025 and seems likely to continue supporting growth in 2026.” Household income has remained stable because “slow hiring has not yet turned into large-scale layoffs.”
But AB describes this labor equilibrium as “precarious.” Demand is weakening faster than supply, unemployment has been rising steadily, and “any additional decrease in labor demand could mean a pivot away from slow hiring and into large-scale layoffs, which have a much more pernicious effect on the economy.”
This is why AB states plainly that “we expect the Fed to cut rates in 2026 by more than the market is currently pricing in.” Importantly, this expectation is not rooted in collapsing growth, but in asymmetric labor risk.
Overlaying all of this is what may be the most consequential non-economic risk in the report: Federal Reserve independence. AB warns that Supreme Court cases that could make the Fed subservient to political authority would be “very disruptive sooner or later,” calling independence “perhaps even the critical underpinning, of economic and financial stability.”
If that independence were lost, AB argues, “higher inflation over time will become just about inevitable.” This is not framed as a tail risk—it is treated as a structural regime break with profound implications for fixed income and currencies.
Europe and the UK: Fiscal Divergence, Disinflation Risks, and Policy Asymmetry
Europe’s outlook hinges on fiscal execution, particularly in Germany. AB describes Germany’s planned spending as “the major upside economic surprise in 2025,” but cautions that “now it’s time for the plan to come to fruition.” If fiscal plans proceed, they would provide “important support for growth in 2026”; if not, “it could cause a deterioration in both growth and sentiment.”
Europe also faces a distinct inflation challenge. China’s export-driven deflation is pushing prices lower, enabling aggressive ECB easing—but at the cost of domestic competitiveness. AB notes that “surging imports from China have pushed prices lower,” creating disinflation while simultaneously acting as “a headwind for domestic production.”
The ECB, in AB’s view, has reached neutral territory, but “policy rates are at the upper end of the range of neutral estimates.” As a result, AB believes “at least one additional cut” is warranted, even as the ECB shows elevated tolerance for below-target inflation.
The UK stands apart. Where Germany needs to spend more, “it is clearly best for the UK to be more restrained.” Fiscal credibility remains damaged, borrowing costs elevated, and growth sluggish. AB emphasizes that “better fiscal policy today won’t immediately undo all the damage that has been done, but it will improve the longer-term outlook.” As long as restraint holds, AB expects continued BoE easing.
China: Muddling Through by Exporting Deflation
China’s outlook is described with unusual bluntness. Domestic demand remains weak, nominal GDP growth is at its “lowest growth rate in decades,” and policymakers face limited options. With US markets less accessible due to tariffs, China has pivoted exports toward Asia, Europe, and South America.
The result, as AB puts it, is that “China is exporting deflation to other countries in order to preserve production capacity at home.” The economy, in their assessment, is “largely stable,” but the best it can do is “to muddle through.”
Policy easing is expected in 2026, but it is framed as defensive: “designed mainly to manage downside risks, not to trigger an acceleration.” AB acknowledges two interpretations of this stance—one optimistic, one pessimistic—and concludes: “We lean toward the more optimistic interpretation, but even so we recognize that the challenges facing policymakers in China are profound, and a mistake could be costly.”
Emerging Markets: Resilient—but Not Uniformly Cheap
Emerging markets benefit from China’s stability, lower interest rates, and steady fiscal dynamics. AB expects EM growth to “remain resilient in 2026, continuing to outperform developed markets.” Inflation has moderated meaningfully, giving central banks room to cut further.
However, AB injects a clear note of caution. “EM debt valuations appear relatively rich and EM FX valuations are not uniformly cheap.” Geopolitical risk—highlighted by US intervention in Venezuela—is described as potentially contagious rather than idiosyncratic.
Still, AB sees a constructive setup for EM currencies, noting that “structural headwinds may become more binding in 2026, sustaining a dollar-depreciating bias that would benefit emerging markets.” Productivity-led growth and AI-adjacent foreign direct investment are cited as longer-term supports.
Markets: Stability, Not Complacency
Given this macro backdrop, AllianceBernstein’s market outlook is intentionally restrained. “Stability does not mean stasis,” they write, expecting volatility to normalize after the unusually calm second half of 2025. Valuations are stretched, return expectations should be tempered, and “even the generally positive news we expect may not drive large asset price returns.”
The report closes with a warning that reads almost philosophical: “Calm on the surface often masks turmoil below.” High debt burdens, trade frictions, geopolitical volatility, and political cycles could “upend the apple cart, at least for a time, and it could happen without much warning.”
Yet AB also emphasizes resilience—the same resilience that carried the global economy through 2025 and, in their view, is likely to persist into 2026.
Footnote:
1 AllianceBernstein. Global Macro Outlook: First Quarter 2026. Global Economic Research, AllianceBernstein L.P., Jan. 2026
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