PIMCO Releases 2026 Secular Economic Outlook: 'A Rupturing World and Resilience'

Looking ahead at the global economy, multiple scenarios could significantly diverge in the coming years.

Underlying this outlook are the fragmentation of international alliances, fiscal constraints, and the advancement of large-scale AI investments. This environment is expected to create investment opportunities for diversified, high-quality bond and credit strategies.

PIMCO (Pacific Investment Management Company LLC), a global leader in active bond management, has released its 2026 Secular Economic Outlook titled 'A Rupturing World and Resilience.' The report was authored by Richard Clarida, former Vice Chair of the Federal Reserve and PIMCO’s Global Economic Advisor; Andrew Balls, Global Head of Fixed Income and Chief Investment Officer; and Daniel J. Ivascyn, Group Chief Investment Officer.

The World in a State of 'Rupture'

This report presents economic projections for the next five years, arguing that the world is currently in a state of 'rupture.' The fragmentation of trade, security, and financial alliances—highlighted by PIMCO in its 2025 Secular Outlook 'The Age of Fragmentation'—is accelerating further. Its effects are already evident in energy prices, supply chain data, economic growth rates, and investment returns.

The authors state: 'The cost of complacency is rising rapidly. We can no longer rely on traditional assumptions of globalization, policy support, and low volatility.'

Geopolitics, economic security policies, and political developments are now direct drivers of economic growth and inflation, widening disparities across countries, regions, and sectors.

Key Drivers of the Global Economy Over the Next Five Years: Geopolitics, Fragmentation, and AI Investment

PIMCO identifies the following as key drivers of the global economy over the next five years:

Geopolitical risks (shifting from theoretical to real)

Accelerating fragmentation of the global economy

Expansion of large-scale AI investment

In addition to AI infrastructure, increased defense spending and investment in energy security could boost global capital expenditure by approximately $14 trillion over the next five years.

The report also notes opposing forces at play regarding inflation. While the widespread adoption of AI could act as a powerful disinflationary force by suppressing wage levels and boosting productivity, geopolitical shocks and supply chain reconfiguration may exert upward pressure on prices. As a result, the distribution of outcomes around the base scenario—so-called 'fat tails'—could widen.

Furthermore, the report emphasizes that energy sits at the center of current uncertainty. Energy security is closely intertwined with economic security, defense capabilities, and the deployment of energy-intensive technologies like artificial intelligence, and cannot be considered in isolation. Under any scenario, geopolitical risk premiums in energy markets are expected to remain elevated over the long term.

On monetary and fiscal policy, the report underscores the importance of monetary policy, noting that central banks will take necessary measures to maintain stable inflation expectations.

'PIMCO is confident that over the next five years, central banks will take the necessary actions to maintain stable inflation expectations,' the authors state. However, fiscal space is limited in nearly all advanced economies, potentially constraining future economic responses.

Investment Implications: Prioritizing Resilience Over Risk-Taking

Against this backdrop, PIMCO argues that the reset of bond yields to generational highs in recent years has enhanced the effectiveness of diversified, high-quality bond-centric investing, enabling the construction of resilient portfolios. The report notes that investors can now aim to build globally diversified, high-quality bond portfolios offering local-currency yields of around 5–7%. These portfolios can compete with long-term equity returns, even with lower potential volatility than equities.

Moreover, the high starting yields mean that income generation will play a more important role, reducing reliance on capital gains. 'A key investment implication of PIMCO’s Secular Outlook is not that investors should avoid risk, but that they should be adequately compensated for taking risk—and that achieving reasonable long-term returns no longer requires taking excessive risk,' the authors state.

The report emphasizes that equity valuations remain historically high, and equity risk premiums—especially in the U.S.—are near the lower end of their post-war range. With many investors overweight in equities, PIMCO suggests revisiting the traditional '60% equities / 40% bonds' portfolio allocation.

In credit markets, PIMCO maintains a cautious stance toward lower-credit-quality corporate credits that are sensitive to economic cycles. PIMCO believes a more substantive default cycle is underway, and investors should not assume that past rapid recovery patterns will repeat with the same certainty. In contrast, asset-backed finance—including equipment financing, consumer lending, residential mortgages, real estate credit, and selected infrastructure financing—offers investment opportunities with a strong balance of income and downside protection.

Among high-quality bonds, PIMCO expresses strong conviction in intermediate-duration bonds, agency mortgage-backed securities (MBS), sovereign bonds across countries, and inflation-linked bonds. Emerging markets, while effective for portfolio diversification and yield, may be undervalued from a risk management perspective, the report notes.

Conclusion: Discipline Over Boldness

Finally, the authors state, 'The most significant investment mistake is pursuing risk without adequate compensation.' By centering portfolios on high-quality, liquid bonds, emphasizing credit quality, and selectively allocating to international diversification, real assets, and asset-backed finance, resilient portfolios can be built. Over the next five years, discipline—and prioritizing resilience over risk-taking—will be more important than boldness, the report concludes.

The full English report is available here.

Founded in 1971, PIMCO operates globally with offices around the world, providing asset management services to a global client base.

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PIMCO is a global leader in active fixed income, with deep expertise in both public and private markets. For decades, PIMCO has navigated complex bond markets