Torsten Slok on Economic Outlook: AI, Inflation, and Recession Risks for 2026

Economic Forecast for 2026

• 📊 The jobs report for December is anticipated to be a clean reading after previous months were impacted by a government shutdown, with expectations for job growth to be higher than consensus.
• 🚀 Several economic tailwinds are building, including lower oil prices, a weaker dollar over the past 12 months, and a boom in AI and data center spending.
• 💰 A significant fiscal policy boost is expected from a large bill, estimated to add 0.9% to GDP growth in 2026, making a bearish economic outlook increasingly difficult.

Shifting Inflation and Growth Outlook

• ⚠️ The economy is entering the year with inflation near 3%, and as labor market weakness fades, there's a rising risk of shifting from a stagflationary outlook to an overheating scenario.
• 📈 Companies can now benefit from 100% expensing of capex decisions this year, allowing immediate tax deductions, which is expected to drive higher growth, particularly on the capex side.
• ✅ The outlook is becoming more optimistic for 2026, moving away from concerns of stagflation towards potential overheating.

Recession Probability and AI Risks

• 📉 The consensus market expectation for a recession probability in the next 12 months is considered too high; the speaker's firm estimates it closer to 10%.
• 💡 Artificial Intelligence (AI) is identified as the number one risk to the economic outlook, presenting a dual potential: it could be the biggest downside risk if productivity gains are not realized, or the biggest upside risk if it delivers significantly on earnings and efficiency.