We expect there to be a lot of similarities between 2025 and 2026. Global growth should rise modestly to around trend levels, consumer spending should remain supported by healthy balance sheets and strong wealth gains, policy rates will fall a little more, credit conditions will remain favourable, corporates should post solid earnings growth, rate sensitive investment will continue to rise and while sentiment towards AI will ebb and flow, it should remain a strong underpin for both economies and markets. Against this there are risks. Softening labour markets, sticky inflation, areas of private credit, speculative assets and rising long bond yields. But while these concerns are likely to cause plenty of angst, they should not derail the backdrop. Expect equity markets to trade higher in a very haphazard way with Australia posting “average” year returns in the region of ~10%. That’s not bad, but it’s not great and the volatile path will make these gains seem very hard to come by.
