Special Encore: 2026 Global Outlook: Slower Growth and Inflation

Original Release Date: November 17, 2025

In the first of a two-part episode presenting our 2026 outlooks, Chief Global Cross-Asset Strategist Serena Tang has Chief Global Economist Seth Carpenter explain his thoughts on how economies around the world are expected to perform and how central banks may respond.

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----- Transcript -----

Serena Tang: Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's Chief Global Cross-Asset Strategist. 

Seth Carpenter: And I'm Seth Carpenter, Morgan Stanley's Global Chief Economist. 

Serena Tang: Today, we'll focus on [the] all-important macroeconomic backdrop.

Serena Tang: It's Monday, November 17th at 10am in New York. 

So, Seth, 2025 has been a year of transition. Global growth slowed under the weight of tariffs and policy uncertainty. Yet resilience in consumer spending and AI driven investments kept recession fears at bay. Your team has published its economic outlook for 2026. So, what's your view on global growth for the year ahead? 

Seth Carpenter: We really think next year is going to be the global economy slowing down a little bit more just like it did this year, settling into a slower growth rate. But at the same time, we think inflation is going to keep drifting down in most of the world. Now that anodyne view, though, masks some heterogeneity around the world; and importantly, some real uncertainty about different ways things could possibly go. 

Here in the U.S., we think there is more slowing to come in the near term, especially the fourth quarter of this year and the beginning of next year. But once the economy works its way through the tariffs, maybe some of the lagged effects of monetary policy, we'll start to see things pick up a bit in the second half of the year. 

China's a different story. We see the really tepid growth there pushed down by the deflationary spiral they've been in. We think that continues for next year, and so they're probably not quite going to get to their 5 percent growth target. And in Europe, there's this push and pull of fiscal policy across the continent. There's a central bank that thinks they've achieved their job in terms of inflation, but overall, we think growth there is, kind of, unremarkable, a little bit over 1 percent. Not bad, but nothing to write home about at all. 

So that's where we think things are going in general. But I have to say next year, may well be a year for surprises. 

Serena Tang: Right. So where do you see the biggest drivers of global growth in 2026, and what are some of the key downside risks? 

Seth Carpenter: That's a great question. I really d