(Yicai) Jan. 7 -- Economic uncertainty will diminish this year compared with 2025, with the basic economic trends in the United States, Japan, and Europe largely continuing. Deficit spending will support the job market, the uncertainty about US President Donald Trump's policies abroad will decrease, the Russia-Ukraine conflict shows signs of resolution, and despite supply chain vulnerabilities persisting, they are unlikely to trigger new crises.

Here are five major questions hanging over the global economy in 2026.

1. What are the hidden risks of the US' K-shaped recovery?

The US economy displays a typical K-shaped distribution, where high-income earners benefit from the wealth effect and maintain strong consumption willingness, while low-income groups are squeezed by rising living costs, leading to widespread consumption downgrading. The labor market has also raised warning signs, with monthly employment additions at around 50,000, approaching the Federal Reserve's "recession line." A growth without jobs.

The good news is that tax refund checks from the "Big and Beautiful" bill will be mailed out one after another, various investments are accelerating, and Fed rate cut effects are beginning to take hold. However, services inflation remains persistently high, preventing inflation from falling back to the 2 percent target.

2. Will the change of the Fed chairperson lead to a shift in policy thinking?

The Fed faces two major variables in 2026: a leadership change and a large-scale reshuffling of board members, the most significant personnel appointments in nearly four decades. The new chair is expected to align with White House priorities, balancing inflation and employment goals while managing political pressure from the White House, along with declining bond market liquidity.

This year will be one of easing for the Fed, with the 2 percent inflation target potentially quietly abandoned. The policy rate may potentially trend toward the 2.5 percent neutral level, or even 2 percent if employment conditions deteriorate. If financial stability is threatened, a new round of quantitative easing could emerge at any time.

3. What impact will fiscal capitalism bring?

The US, Japan, and Germany have entered a new fiscal expansion cycle, with sustained fiscal output providing the main momentum driving the world economy. There are two reasons: governments are increasingly catering to voters, pursuing only upward economic cycles and attempting to mitigate downturns through stimulus measures.

Central bank policy independence has diminished, with quantitative easing filling government fiscal gaps. The cost is excessive credit issuance, sometimes triggering consumer price inflation but more often leading to soaring asset prices and widening wealth inequality.

Among G7 countries, all except Germany have debt-to-gross domestic product ratios exceeding or approaching the International Monetary Fund's 120 percent warning line. The US relies on Fed QE for support, Japan depends on long-term stable domestic insurance funds, and the European Central Bank cannot cooperate with governments as effectively as the Fed, making its bond market more vulnerable, with particular concern about France and the United Kingdom. Political extremism is spreading not only in the US but also in Europe and Japan.

4. Can precious metals sustain their rise?

Gold rose 65 percent last year, while silver surged 149 percent, the most outstanding performance among major asset classes. The main buyers of gold and silver have been central banks and exchange-traded funds, reflecting the pursuit of assets unaffected by central bank easing policies by governments and the private sector.

Developed economies have entered new fiscal expansion cycles, with fiscal deficits ultimately requiring monetary expansion to cover the bill. This year, the monetary policy is bound to be more accommodative than market pricing. Once the Fed begins large-scale easing, the European Central Bank and Bank of England will follow suit, and the Bank of Japan's rate-hike pace may also stop, which is favorable for gold.

Industrial demand has improved the prospects of silver, while the rise of artificial intelligence and data centers has sharply increased the metal's industrial applications, resulting in a continuous supply-demand gap. China, the US, Japan, Germany, and India have successively launched national reserves. Although it has become a crowded trade, as an asset hedging against central bank credibility risk, its investment logic persists over the long term.

5. Has the AI craze reached a turning point?

The AI revolution is real, but it is doubtful whether the US' big AI investment can be sustained. Technological development is never linear; it must go through breakthroughs, application transformation bottlenecks, and liquidity cycle shocks. The past three years have been an era of heavy investments in building large models and data centers, but the scale of burning money has become increasingly unsustainable, with bond market and private equity financing becoming increasingly common. The AI investment "arms race" will continue this year, but at a slower pace, with a high chance of AI stock prices plunging.

More noteworthy is that industry focus may shift from competing on models to competing on applications. AI commercialization will be the new battleground, with consumer devices and small models empowering enterprises poised for greater development, and AI is entering the AI+ era. Chinese AI model downloads topped US ones for the first time. The open-source model is more suitable for application promotion, with the role of Chinese open-source AI in the AI+ era remaining an open question.

The author of this article is Tao Dong, president and chief economist at Springs Capital Hong Kong.

Editor: Martin Kadiev