Key Takeaways
- • Mercer's Economic and Market Outlook 2026 expects global growth to remain steady, led by a resilient US economy supported by solid consumption, fiscal stimulus from the OBBBA, and AI-driven investment approaching USD 500 billion.
- • Mercer expects the US Federal Reserve to keep easing, with markets pricing rates just below 3% by year-end, while the ECB holds near 2% and the Bank of England may ease more aggressively than markets anticipate.
- • Mercer's key 2026 risks center on technology (AI overinvestment and elevated valuations), policy (US midterms and a new Fed chair), rising public debt, and geopolitics.
- • Mercer rates global market positioning as broadly neutral, favors Japanese equities and UK gilts, and sees frontier and Asian high-yield debt as offering better value than tight-spread credit markets.
- • Private markets outlook for 2026 is organized around exits, the use case for AI, and the democratization of private markets.
Summary
Mercer's Economic and Market Outlook 2026, titled "Reshaping: What investors should consider in 2026," frames 2025 as a consequential year and expects 2026 to follow suit. The report characterizes the Trump administration as having set the US on a different economic path from the post-1945 consensus, while noting that the trade agenda appears to have had only a modest impact on growth. AI-driven investment is identified as the other major development, with its consequences described as still unclear.
On growth, Mercer expects global expansion to remain steady in 2026, led by the US, where consumption, fiscal stimulus from the OBBBA and AI investment approaching USD 500 billion should support activity. Europe is expected to benefit from German infrastructure spending and lower rates, the UK is described as soft but fiscally stable, and Japan's growth is expected to stay modestly above trend. China is expected to hold near current levels as weak domestic demand offsets gains in high-tech manufacturing. Emerging markets should grow at a decent pace, though higher rates will weigh on parts of Latin America.
Mercer expects inflation to stabilize around central bank targets, with regional variation. US tariffs should keep inflation elevated before it eases toward the Fed's 2% target in 2027, while the euro area should hold near 2%. China is likely to remain near deflation. On monetary policy, the Fed is expected to continue easing, though cuts may slow if growth firms or inflation stays above target. The ECB is expected to hold around 2%, the Bank of England may ease more aggressively than markets expect, and the Bank of Japan is set to tighten modestly with at least two hikes expected.
Mercer identifies technology, policy, debt and geopolitics as the central risks for 2026. It warns of AI overinvestment and elevated valuations, trade restrictions and semiconductor tariffs, US midterm elections and the appointment of a new Fed chair, and unsustainable fiscal paths in major developed economies. Geopolitical flashpoints cited include Russia-Ukraine, the Taiwan Strait, the South China Sea and the Middle East.
In markets, Mercer describes global positioning as broadly neutral. Developed market equities are expected to see solid earnings growth driven by AI-linked sectors, while Japanese equities are a bright spot on governance reform. UK gilts are viewed as attractive, Japanese bonds face pressure, and frontier and Asian high-yield debt are favored. The firm expects euro and yen strength against a softer US dollar, with sterling and the Swiss franc under pressure. The private markets section highlights exits, AI use cases and the democratization of private markets as its three core themes.
On growth, Mercer expects global expansion to remain steady in 2026, led by the US, where consumption, fiscal stimulus from the OBBBA and AI investment approaching USD 500 billion should support activity. Europe is expected to benefit from German infrastructure spending and lower rates, the UK is described as soft but fiscally stable, and Japan's growth is expected to stay modestly above trend. China is expected to hold near current levels as weak domestic demand offsets gains in high-tech manufacturing. Emerging markets should grow at a decent pace, though higher rates will weigh on parts of Latin America.
Mercer expects inflation to stabilize around central bank targets, with regional variation. US tariffs should keep inflation elevated before it eases toward the Fed's 2% target in 2027, while the euro area should hold near 2%. China is likely to remain near deflation. On monetary policy, the Fed is expected to continue easing, though cuts may slow if growth firms or inflation stays above target. The ECB is expected to hold around 2%, the Bank of England may ease more aggressively than markets expect, and the Bank of Japan is set to tighten modestly with at least two hikes expected.
Mercer identifies technology, policy, debt and geopolitics as the central risks for 2026. It warns of AI overinvestment and elevated valuations, trade restrictions and semiconductor tariffs, US midterm elections and the appointment of a new Fed chair, and unsustainable fiscal paths in major developed economies. Geopolitical flashpoints cited include Russia-Ukraine, the Taiwan Strait, the South China Sea and the Middle East.
In markets, Mercer describes global positioning as broadly neutral. Developed market equities are expected to see solid earnings growth driven by AI-linked sectors, while Japanese equities are a bright spot on governance reform. UK gilts are viewed as attractive, Japanese bonds face pressure, and frontier and Asian high-yield debt are favored. The firm expects euro and yen strength against a softer US dollar, with sterling and the Swiss franc under pressure. The private markets section highlights exits, AI use cases and the democratization of private markets as its three core themes.
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