Carsten's View Of 2027

(MENAFN- ING)

As we head into 2027, power plays are intensifying on all fronts. American voters have just had their say in the midterm elections, and a president who has spent two years reshaping the post-war international order now faces a Congress with the power to push back. In Europe, too, a crowded election calendar will put governments and political alliances to the test. And beyond the ballot box, a different kind of power struggle is playing out: the battle for control of trade, technology and energy. Put it all together, and the outlook starts to read like a high-stakes political thriller.

For two years, one current has dominated the global economy: artificial intelligence. A handful of US tech giants have poured hundreds of billions of dollars into data centres, chips and models, propping up US growth and carrying equity markets to record highs. In 2027, that surge is likely to ease somewhat. That by itself is not a cause for alarm. The current is spreading into grids, power plants and infrastructure, and into the many firms that are only now beginning to put AI to work. Growth should become less spectacular, but broader. How stock markets respond is for investors to decide.

An important prerequisite for the AI boom to end in a soft landing is falling energy prices. If they do fall, central banks might finally be able to do something they have rarely done since the pandemic: sit on the sidelines. If prices remain high, however, the picture changes. Central banks could become the circuit breaker, forced to raise rates more aggressively to contain inflation, at the risk of breaking something along the way. And it might not be the tech sector that breaks. Instead, policymakers could find themselves confronting an uncomfortable trade-off: how much pain are they willing to inflict to contain the inflationary pressures of an AI-fuelled boom, both in the real economy and financial markets? Tighten too hard, and the global economy could be in for a much rougher ride. Remember, some of history's biggest stock market crashes have been preceded by sharp monetary tightening.

The AI race has opened another, quite literal, power play. Households and traditional industry are increasingly competing with AI and data centres for energy, and it is those more traditional parts of the economy that look far more vulnerable to higher interest rates. Even if energy prices fall as tensions in the Middle East ease, Europe still faces a structural disadvantage: energy remains more expensive than for many of its competitors. This problem still needs to be addressed.

And then there's politics. The impact of the US midterms will clearly spill over into the new year. The question is whether Donald Trump becomes a conventional 'lame duck', or an altogether less predictable 'angry duck'. Early statements from Trump and senior Republicans immediately after the midterm results suggested his final two years in office could be conciliatory. The appointment of Stephen Miller as White House Chief of Staff, however, points in a more confrontational direction.

While the US is shifting into a new political era, Europe risks following America's populist turn, albeit with a lag measured in years rather than months. Elections in France, Italy, Spain, Poland and possibly even Germany carry the risk of further political fragmentation and more extreme economic policies. Recent riots in many European cities signal that intergenerational conflict, the cost of living and housing affordability have become deep-rooted societal problems across much of the developed world.

In our outlook for 2027, we once again follow the '3 calls' structure: a base case, a riskier call and a bold call. The riskier and bold calls are not part of our house view but food for thought, and should prepare you for possible tail-risk scenarios.

2027 promises to be another eventful year of power struggles, hopefully with far less military conflict than the world has witnessed since 2022. And, as so often, there is plenty that could go wrong. Yet I can't shake the thought that, with a little luck and the right timing, next year's macro environment could prove more benign than many fear.

If 2027 needs a soundtrack, Snap!'s 'I've Got the Power' seems an obvious choice. Plenty will be singing along. The trouble is, they can't all be right.

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