Deutsche Bank-The House View Anything but dull-119154994

02/12/2025 12:57:37 GMT02/12/2025 12:57:37 GMTSensitivity: PublicDeutsche BankResearchThe House ViewAnything but dullDecember 2025Marion LaboureCamilla SiazonJim ReidIMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.Sensitivity: PublicMonths in ReviewSources: Politico, Euractiv, Reuters, Semafor, CNBC, Wired, Financial Times, NYTDeutsche Bank. ResearchAs we close the chapter on a turbulent year, the road ahead looks volatile but broadly positive. The dominant theme in2026 will be the transformative potential of AI, which will continue to drive productivity gains and faster growth.However, given the market dominance of the high beta Magnificent 7, it's unlikely to be a straight-line journey.This rapid AI investment and adoption, coupled with ongoing Fed rate cuts and more certainty on the trade front,means that our global economists and strategists remain optimistic. Notably, our US equity strategist has an S&P 500target of 8,000 for year-end 2026. And we expect global growth to remain around its levels over the last couple ofyears, at 3.2% in 2026.Nevertheless, the regional drivers of global growth are shifting, even as its pace remains similar. So Germany, afteryears of stagnation, is set for a significant rebound of 1.5% in 2026 and 2027 thanks to new fiscal stimulus. The rest ofEurope may see a slight slowdown after 2025, but momentum is expected to build through the year, even if France’ssituation continues to pose risks on the fiscal side. The US is forecast to grow at 2.4% in 2026, driven by fading tradeuncertainty, tax cuts boosting household income, and broadening growth beyond AI-related capex, with potential for anAI-driven productivity boom. Finally, China's growth is set to moderate to 4.5% in 2026 due to Beijing's "anti-involution"reforms, while India's economy is set to grow at 6.4%, likely overtaking Japan as the world’s fourth largest economy.Of course, a few key risks remain. Despite receding trade tensions, the US-China rivalry will continue to coalescearound each other’s supply chain chokepoints – rare earths and pharmaceutical supplies vs leading edge GPUs andfabrication equipment – leaving markets vulnerable to sudden escalation. In the US, recession risks are somewhatelevated again due to its precarious labour market. Geopolitical flashpoints will continue to surprise investors and shockmarkets. And, in this higher equilibrium rate environment, markets will closely watch major economies as they embarkon their expansionary fiscal plans, renewing concerns around debt sustainability. Our strategists also expect yields tomove higher this year, with the 10yr UST reaching 4.45%, and the 10yr bund moving up to 3.10%. The dollar shock isover, but our strategists still expect further weakness in 2026, albeit at a slower pace.David Folkerts-Landau, Group Chief EconomistThe House View,