As we enter 2026, the global economy looks to be in better shape than many feared last April, with recession risks receding. However, the landscape is more fragile than the headlines suggest.
Tariffs have and will continue to push up US retail prices, although the impact on inflation has been disguised by companies stockpiling ahead of tariff hikes, a drop in oil prices, and slower wage growth from a weakening labour market offsetting.
AI valuations are frothy, with investors likely to be asked to swallow a large number of giant initial public offerings (IPOs), potentially including OpenAi at $750bn, Anthropic at $300bn, and Elon Musk’s rocket company SpaceX at $800bn.
Fiscal policy is loose in the US and China, and getting looser in Germany and Japan. Interest rates have fallen in most major markets, and financial conditions are easier, but this stimulus has likely masked deeper structural weaknesses.
The K-shaped economy is one where asset prices are strong and the wealthiest households do well while the majority of people are squeezed by a cost-of-living crisis. This is likely to persist in the short term but is ultimately politically unsustainable.
Geopolitically, the world looks fragile too; Trump’s resurrection of the Monroe doctrine could embolden China to take over Taiwan. Ukraine looks unlikely to be able to beat off Russia with the current level of Western support while the violent crushing of protests in Iran could spill into a broader regional conflict.
Could any of this blow up in 2026? And if it does, will it stop the relentless march of higher equity markets? The biggest macro risks for markets are the ones that take everyone by surprise. So, the key is to have a portfolio resilient to unexpected deterioration rather than trying to predict the exact nature of the shock.
Long-term investors, such as not-for-profits, face a dilemma. Shorter-term investors, such as pension schemes, have on the whole met investment objectives and are de-risking.
However, if a not-for-profit de-risks now, but markets keep powering upwards, they risk having to buy back at much higher levels. 2026 is less
about making bold macroeconomic calls and more about portfolio construction: understanding where risks are concentrated, how different assets behave across regimes, and how well portfolios are aligned with long-term spending needs and charitable objectives.
Uneven global growth
Broadly speaking, the balance of risks has shifted away from an imminent global recession towards a slower and more uneven expansion.
In the United States, activity has been stronger than expected in the second half of 2025. Third-quarter US GDP came in at 4.3% and the Atlanta Fed’s GDP Now suggests that growth is tracking at an astonishing 5.1% for the fourth quarter.
We suspect that these numbers will get revised down, but US growth ought to exceed current consensus estimates of around 2.2% in 2026, which should help underpin global activity.
For the UK, growth remains modest but positive, with year-on-year GDP growth of around 1.3% broadly in line with expectations. Elsewhere, parts of Asia have continued to benefit from strong demand linked to semiconductors and AI-related investment.
However, challenges remain. China faces structural challenges from its continued reliance on exports, while Europe must strengthen its internal market and competitiveness. Growing US–EU tensions could add further strain.
Inflation and central banks
Inflation remains above central bank targets in most developed economies. In the UK, November consumer price index (CPI) inflation stood at 3.2%. Meanwhile, in the US, headline inflation has eased, although recent readings have been complicated by shutdown-related data gaps.
Against this backdrop, most central banks have significantly cut back rates since the start of 2024, with the Bank of England rate falling to 3.75% in December versus a peak of 5.25%. We think the UK will have scope for a couple of cuts in 2026.
Depending on the makeup of the Federal Open Market Committee (FOMC), the Federal Reserve may also be cutting a couple of times next year
but with rates starting from a lower level, growth much stronger, and the possibility that inflation will re-accelerate, the justification for doing so is much weaker.
Geopolitics, trade and currencies
While recent events in Venezuela are dramatic politically, they are likely to have a limited impact on global energy markets. Venezuela produces less than 1% of global oil supply, and much of its reserves require substantial new investment that looks unlikely given political risk and current prices.
Iran could see a destabilisation of the Middle East which could end up jolting oil prices higher. By contrast, any credible progress towards a Ukraine–Russia peace settlement could have a far larger influence on European energy markets and broader risk sentiment.
Meanwhile, the direction of travel in trade remains towards greater fragmentation. While the US has reduced tariffs on some agricultural imports, easing pressure on food prices, there are credible rumours of new tariffs on strategic sectors such as semiconductors and pharmaceuticals.
As for the US dollar, geopolitical uncertainty has strengthened gold and silver markets with AI-related growth taking on increasing significance.
Vendor financing and the dangers for markets
Profits across the tech supply chain have ballooned, with investment in data centres booming from around $125bn in 2023 to $470bn in 2025, and a
projected $620bn in 2026, according to Morgan Stanley estimates.
NVIDIA’s profits have increased from a gross profit of $16bn in the fiscal year ending in February 2023 to likely more than $150bn in the current fiscal year. Asian chip makers from TSMC (who make NVIDIA’s chips) to SK Hynix (a manufacturer of RAM) have also seen profits expand rapidly.
However, a concern is that investment in data centres is unsustainable both financially and environmentally. OpenAI, the lab behind ChatGPT, plans to spend $1.4tn on datacentres alone, a plan which is only possible because NVIDIA has been able to provide financing, which raises questions about vendor financing.
If the merry-go-round were to stop, and AI fails to generate the projected revenues to justify such huge expenditures, then a vicious feedback loop could develop.
Implications for charities, endowments and foundations
Charities often have long time horizons for investment and need to balance preserving the real value of their investment with today’s spending priorities. In the current economic climate, we suggest considering:
1. Public equities: Understand what you own
- In the current market environment with growing concentration in equity markets, it’s important to put the design of your equity portfolio in focus.
- Know what’s in your portfolio, the reasons why and how your manager’s choices influence your overall exposure.
- Key considerations when reviewing your allocation include evaluating the blend of geographical, style, and size characteristics, and ensuring you are paying a reasonable fee.
2. Credit: Consider widening your opportunity set
- However, with public credit spread tight, we see relatively more attractive opportunities in semi‑liquid and illiquid credit strategies, which provide exposure to areas such as fund financing and asset‑based lending.
3. Prioritise diversifiers that truly diversify
- With investment returns from traditional markets (equity and credit) expected to continue to be volatile over the short-term, not-for-profits could consider allocating to investment strategies with minimal correlation to these markets. This includes alternatives such as insurance-linked securities and low-beta hedge funds.
4. Revisit spending and risk budgets through an inflation lens
- With inflation likely to be higher and more volatile than in the pre-pandemic decade, spending rules that felt comfortable in a low-inflation world may now erode real capital more quickly.
- Explicitly linking spending policies, return expectations and inflation scenarios can help boards judge the trade-offs between today’s grants and tomorrow’s purchasing power.
Overall, 2025 has reinforced that we are in a more complex, more inflation-prone and more politically-charged regime. For charities, endowments and foundations, the right response is not to become more short term, but to ensure portfolios are robust: diversified across genuine sources of return, conscious of valuation risk in public markets, and deliberate in using illiquidity where their long-time horizons allow.
Derry Pickford is head of asset allocation and Jennifer O’Neill is head of not-for-profit investment at Aon
