Market Talk: Trump to do 'everything that he can' to avoid recession — REUTERS

[00:00:00] Speaker 1: Wall Street is rolling out its crystal ball for 2026, but what it sees is far from certain. Prediction season is here. In 2025, markets have powered through a parade of potential threats, from new tariffs to rising geopolitical tensions. Optimism, though, is running high, and not even fears of an AI-driven bubble have dampened the mood. But before traders get too comfortable, what risk is lurking around the corner in 2026? Karsten Briskey is the global head of macro for ING. So, Karsten, the global economy has shown remarkable resilience this year. Can this disconnect between geopolitics and economic performance continue next year? [00:00:37] Karsten Briskey: We think that this disconnect between politics, geopolitics, this big uncertainty, and the real economy and markets can continue in 2026. Because we are seeing a moderate growth story in the Western world. We see the US going through a soft patch, but then recovering in the course of 2026. We see the balance of growth in Europe shifting a little bit. So, where Germany should finally leave stagnation, but France should slow down. But overall, the European economy should also grow at around potential. And when you look at Asia, when you look at China, but also Japan, also there we do see moderate growth in 2026, despite the fact that the list of downside risks, particularly stemming from geopolitics, is still very long. [00:01:27] Speaker 1: Well, for many central banks, 2026 could mark the end of the rate cutting cycle. Does that mean it's unlikely to be a year for bonds? [00:01:33] Karsten Briskey: It looks as if the inflation cycle is shorter and probably more frequent than what we were used to in the past. So this is also why, indeed, it looks as if the the cutting cycle is over for central banks. But I think that central banks will be in no rush to actually start hiking rates again. When you look at bonds and when you mean there, I think we will see another theme, and that is a continuation of 25, namely an increase in government debt, because all Western governments somehow, you know, want to spend money that they don't have, whether it is on additional investments, whether it is on military, whether it is also for for social security, whether it is to tackle the demographic change in many Western economies. So this means that we are expecting government debt to continue to increase in 26. And that, as a consequence, should mean that the longer term interest rate will also go up. [00:02:30] Speaker 1: Well, turning to the U.S. now in 2026 is an election year with the midterms ahead. Will that political backdrop keep Trump constrained or will he continue to shake things up? [00:02:38] Karsten Briskey: When you look at the U.S., I think one thing is guaranteed that tariffs are here to stay. And we should get the ruling of the Supreme Court on part of Donald Trump's tariffs, but even if they were ruled to be illegal, then we would see other tariffs coming up probably more on sectors, automotive, pharmaceuticals. So that is something that clearly is one theme of 26. Another theme is that Donald Trump will do everything that he can in order to avoid a outright recession in the U.S. So we are expecting a more additional fiscal stimulus. And we've heard it already from the U.S. administration. So one option could be that the government will what they call send over a tariff rebate. So checks to low and middle income households by one thousand, two thousand U.S. dollars. And that should be enough to then also bring the economy through a soft patch. Next to that, we still expect that the investments in AI will continue and no matter what stock markets will do. But in the real economy, investments in AI will be an important growth driver for the U.S. economy. [00:03:49] Speaker 1: Well, the eurozone economy seems to be set for a cyclical improvement. But what's at stake? Inflation undershooting or even euro bonds? [00:03:55] Karsten Briskey: In the short run, I still see a risk of inflation undershooting. When you look at all leading indicators, for example, producer prices, which have been coming down now year on year already for, I think, eight months in a row. So this clearly indicates that headline inflation in the eurozone will come down further and that we could see an undershooting. What this means then in the end for the ECB in 2026, that there still is room for maybe one or two rate cuts. But at the same time, and that is one of our what we call bold calls, not part of our base case scenario, but a bold call. And that is with the rise in government debt, the rise in bond yields, there might be a return of quantitative easing, not only in Europe, but also in the U.S. as central banks will want to avoid a too steep yield curve. [00:04:48] Speaker 1: Well, there's still plenty to worry about, Karsten, from AI bubbles to government spending splurges and oil price spikes. What's jumping out to you as the biggest risk for 2026? [00:04:57] Karsten Briskey: I think there is really still a very long list of risks. Probably the biggest risk to me is that our assumption of the disconnect between geopolitics and the economy will actually be wrong. And that we see a geopolitical escalation, be it around Ukraine, be it in Asia, will in the end have a big knock on effect on the real economy and financial markets. [00:05:22] Speaker 1: That was Karsten Briski from ING. Don't forget, you can watch more videos on Reuters.com.