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2026 Economic Outlook: Extrapolating 2025 Trends

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  //stocks-investing.news-articles.net/content/202 .. -economic-outlook-extrapolating-2025-trends.html
  Published in Stocks and Investing on Sunday, January 4th 2026 at 12:15 GMT by Seeking Alpha

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Navigating the Future: A 2026 Outlook Built on 2025 Trends

The Seeking Alpha article by Michael Bagel, published in late 2023, offers a pragmatic outlook for 2026, not through speculative predictions but by extrapolating three key trends observed throughout 2025. Bagel argues that attempting to predict the future with pinpoint accuracy is futile; instead, understanding and preparing for ongoing shifts provides a more realistic framework for investment decisions and strategic planning. The article focuses on themes of continued inflation (albeit moderating), persistent geopolitical instability impacting supply chains, and the evolving role of AI in productivity and job displacement. Let's break down each trend and its potential ramifications as we approach 2026.

1. Inflation: A Slow Burn, Not a Sudden Freeze

Bagel’s first major point is that inflation, while having retreated from its peak levels of 2022-2023, won't simply disappear. He acknowledges the Federal Reserve’s efforts to combat it and the cooling effect they’ve had, but argues that structural factors will prevent a return to pre-pandemic inflation rates. These factors include ongoing wage pressures (particularly in sectors experiencing labor shortages), persistent supply chain bottlenecks (more on this below), and the lingering effects of fiscal stimulus.

The article emphasizes that 2026 will likely see moderating inflation, not deflation. Bagel suggests an annual rate somewhere between 3% and 4%, significantly above historical averages but also lower than the highs experienced recently. This has implications for interest rates; he anticipates the Fed to maintain a relatively hawkish stance, keeping rates elevated to contain inflationary pressures. He specifically notes that the "higher for longer" narrative regarding interest rates is likely to persist, impacting borrowing costs and potentially dampening economic growth. The linked article from Goldman Sachs (referenced in Bagel's piece) reinforces this view, projecting inflation remaining above 2% through 2026, necessitating continued monetary policy tightening.

This scenario favors investment strategies that can withstand higher interest rates and protect against persistent price increases. Real assets like commodities and real estate could offer some protection, though their performance is also influenced by broader economic conditions. Companies with pricing power – those able to pass on increased costs to consumers without significantly impacting demand – are also likely to fare better.

2. Geopolitical Fragmentation & Supply Chain Resilience

The second trend Bagel highlights is the growing geopolitical fragmentation of the world order. The war in Ukraine, tensions between the US and China, and instability across various regions have created a landscape where globalization's easy flow of goods and capital is increasingly disrupted. This has profound consequences for supply chains.

Bagel argues that 2025 saw businesses fully internalize the fragility of globally extended supply chains. The initial shocks of the pandemic and subsequent geopolitical events forced companies to re-evaluate their sourcing strategies, leading to "friend-shoring" (relocating production to countries perceived as politically aligned) and “near-shoring” (bringing production closer to home). He predicts this trend will accelerate through 2026.

This shift towards more localized and resilient supply chains isn't necessarily cheaper in the short term; it often involves higher labor costs and potentially lower efficiency. However, Bagel believes that the long-term benefits of reduced risk and greater control outweigh these drawbacks. The linked article from McKinsey details this trend extensively, emphasizing the increased focus on resilience over pure cost optimization within supply chain management.

Investors should consider companies actively investing in diversifying their suppliers, building regional production hubs, and adopting technologies like automation to improve efficiency. Reshoring initiatives could also benefit domestic manufacturing sectors. However, it's crucial to assess companies’ ability to manage the complexities of these transitions effectively.

3. AI: Productivity Gains & Job Displacement Realities

The final trend Bagel identifies is the accelerating integration of Artificial Intelligence (AI) into various industries. While AI offers significant potential for productivity gains and innovation, he cautions against unbridled optimism and highlights the potential for job displacement.

2025 witnessed a surge in generative AI tools like ChatGPT, demonstrating their capabilities to automate tasks previously performed by humans. Bagel believes this trend will continue through 2026, impacting not just white-collar jobs but also roles within manufacturing and logistics. While new jobs will be created around AI development and implementation, the transition period is likely to be disruptive, potentially leading to increased unemployment in certain sectors.

The article emphasizes that AI’s impact isn't simply about replacing human workers entirely; it's more about augmenting existing roles and changing skill requirements. Workers will need to adapt by acquiring new skills related to AI usage and data analysis. The linked report from the World Economic Forum highlights this "reskilling revolution" as a crucial challenge for economies worldwide.

From an investment perspective, Bagel suggests focusing on companies developing and implementing AI solutions and those that are proactively investing in workforce training and adaptation programs. He also flags potential opportunities in cybersecurity, given the increased reliance on digital infrastructure and data.

Conclusion: A Cautiously Optimistic Outlook

Michael Bagel’s outlook for 2026 isn't a prediction of doom or utopia. It’s a realistic assessment based on observable trends that are likely to continue shaping the economic landscape. The key takeaways are the persistence of inflation, the reshaping of global supply chains due to geopolitical instability, and the transformative impact of AI. By understanding these trends and adjusting investment strategies accordingly, investors can navigate the challenges and capitalize on the opportunities that lie ahead. The article serves as a reminder that adaptability and a long-term perspective are crucial for success in an increasingly complex and uncertain world.