“The Trump administration’s sweeping tax, trade, and immigration policy overhauls – including quadrupling the effective US tariff rate – were widely expected to stifle global growth, trade and investment. In response, various DM and EM governments announced pre-emptive yet targeted fiscal measures to buffer the economic transitions, while central banks focused on downside risks. It turns out that economic growth has been surprisingly resilient as these policy trends intersected with a new general-purpose technology: AI,” the authors state.
The paper outlines several key investment themes likely to shape portfolio construction in the coming year:
Growth resilience and AI investment tailwinds
Despite higher trade barriers and geopolitical friction, PIMCO believes near-term global growth prospects remain firmer than forecast earlier in the cycle. AI-related capital spending and productivity enhancements are providing an offset to tariff pressures, while lower Chinese export prices have helped global trade flows adjust away from U.S. dependence.
The implication for portfolios: growth-sensitive assets may continue to find support even as policy uncertainty remains elevated.
Diversification opportunities across global markets
The outlook highlights meaningful dispersion across developed and emerging economies. PIMCO points to emerging market local-currency debt as an increasingly compelling source of yield and diversification. Several large EM economies now offer substantial real yield advantages over developed market bonds, with risks viewed as more country-specific than systemic.
