2. Can AI-fueled growth compensate for underlying economic and labor market weakness?
Slowing consumer spending and a stagnant housing market have raised questions about the state of the US economy, while weakness in the US labor market has added to concerns. This has been counterbalanced by the AI capex boom driving business and investment activity. As we approach 2026, this uneasy equilibrium remains intact, with growth based on long-term transformative investments potentially masking the true nature of the underlying real economy.
Whether there is some fragility to the AI-fueled parts of this growth, or whether it can continue to compensate for weaker parts of the economy, is a key question top of mind as we look to 2026. Risks skew several ways. Continued AI adoption and a relatively stable market should provide a solid platform for growth. However, a marked reversal and broad unwind of AI-related investments or significant labor market weakness could be the precursor to a hard landing for the economy. Getting this call right will be a key factor for investors in 2026.
3. Can European growth prospects get the better of multifaceted headwinds?
Europe’s growth story, following Germany’s significant fiscal expansion announced earlier this year, faces a mix of challenges and supportive factors. On the downside, we believe ongoing political uncertainty in France is already affecting soft data, and its continuation could put a handbrake on investment in the country. We are cognizant that potential flashpoints may lie ahead that could derail growth, particularly with the National Assembly fractured over fiscal policy and a presidential election on the horizon in early 2027. Questions also hang over how much impact Germany’s fiscal expansion will have on the economy, given early data suggests it has so far had an underwhelming effect. In addition, the eurozone is continuing to come under pressure from Chinese exporters, whose competitiveness is crowding out their European tech and manufacturing parts. This is exacerbated by China’s use of rare earth export controls, weighing on EU manufacturing further.
However, we believe several potential tailwinds leave the weighting of risks relatively balanced. The upcoming impulse will still provide a catalyst for growth, the strong tourism sector should also be additive, while household balance sheets are providing resilient despite uncertainty. Overall, with recent data releases on growth and inflation tending to surprise on the upside, we expect the ECB to hold rates steady for the foreseeable future.
1 Goldman Sachs Global Investment Research. As of October 8, 2025.
2 Goldman Sachs Global Investment Research. As of September 2025.
3 Goldman Sachs Global Investment Research. As of October 16, 2026.
4 National Retail Federation. As of July 30, 2025.
5 Goldman Sachs Asset Management, MSCI, FactSet. As of November 7, 2025.
6 Goldman Sachs Asset Management, Bloomberg. As of September 2025.
7 Goldman Sachs Global Investment Research. As of September 2025.
8 Goldman Sachs Global Investment Research, Ministry of Internal Affairs and Communications, BoJ, JCER. As of November 7, 2025.
9 Prime Minister’s Office of Japan. October 24, 2025.
10 Goldman Sachs Global Investment Research, Japan Securities Dealers Association. As of August 2025.
11 Goldman Sachs Asset Management, MSCI, TOPIX, Bloomberg. As of October 29, 2025.
12 Bloomberg. As of November 11, 2025.
13 Bank for International Settlements. As of December 2024.
14 US Census Bureau, Government of India. As of July 2025.
15 US International Trade Commission. As of May 2024.
16 TSMC. Company statement. As of March 4, 2025.
17 Goldman Sachs Global Investment Research. As of October 8, 2025.
18 Bank of America. As of November 2025.
