CONTRIBUTORS
Michael Browne
Senior Investment Strategist,
Franklin Templeton Institute
The first instinct many investors have as they wander back to their normal routines after the Christmas and New Year’s break is to check the Christmas sales and what few economic statistics have dribbled out. What investors didn’t likely expect is the momentous action by United States on the global stage. Much to the irritation of the grand commentators, international legal experts and their like, the markets just don’t appear to be interested in the drama. This suggests that investors have learnt the lesson of 2025—front page news is not always important to the business world.
What has distinguished this past week is the equally large shrug of the shoulders that has greeted the data we have seen come out. This week Samsung reported blow-out numbers, greeted with a shrug of the shoulder. But then again, the stock is up 36% since the start of December! In the United Kingdom, the high street retailers have released numbers as well, with Next delivering its strong earnings beat and its usual gloomy outlook. No matter, the stock rose 10% whilst the end of the sausage roll revolution saw Greggs fall 7%. Meanwhile M&S (who reported strong food sales) is trying to work out how to sell food to the estimated two million adults in the United Kingdom that are now using weight loss injections.
The economic conclusion from the UK high street is keep calm—it’s all carrying on. But the opportunity for investors to differentiate, to add value, is rising. With a backdrop of a remarkably stable if uninspiring, economic outlook, this is an encouraging sign of confidence.
The other side of the pond: US productivity renaissance
It’s worth pointing out a simple fact about the US economy: It is growing at an annualised rate of around 4%, whilst job creation is at best anaemic. Therefore, productivity must be going through the roof. It is. Post-global financial crisis (GFC), productivity growth has been the economic lever that has been lost, and it is the key driver of real wage growth. In Europe, before the GFC productivity grew at 1.2% per annum, falling to below 0.4% since then.1
If we are seeing the beginnings of a productivity renaissance in the United States, then it seems likely that the cause of it is artificial intelligence (AI). This should be a worry for Europe as the build-out of data centres and broader investment in AI is a small fraction of that spent in the United States. Going back to 1997, European gross domestic product (GDP) per head has lagged the United States by 33%.2 Any acceleration in productivity, based on AI, is likely to be “job-light,” but then there is not much surplus labour to be had either. But it would also be profit-heavy.
This year should give investors a strong steer as to whether we are in a productivity boom. The goldilocks scenario is we all do more, growth accelerates and eventually we all get paid for it. The bear scenario is GDP growth rates stagnate, and profit margins rise as employment levels fall. At that point, expect inflation to be way under target and interest-rate cuts to come into view once again.
Is this a double-headed coin? Of course not, they don’t exist! But it is what the markets seem to be focussed on right now, not geopolitics.
Parting shot
Earnings drive markets, not politicians.
Welcome to 2026!
Endnotes
- Source: “To unleash productivity growth in Europe, rewire your operations.” McKinsey Research. September 18, 2025.
- Ibid.
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