Podcast Summary: Thoughts on the Market

Episode: How Consumers, CapEx and Fiscal Policy Are Driving Growth
Host: Seth Carpenter (Morgan Stanley's Global Chief Economist)
Guests: Michael Gapen (Chief US Economist), Chet Naya (Chief Asia Economist), Jens Eisenschmidt (Chief Europe Economist)
Date: January 23, 2026

Episode Overview

This episode zeroes in on how different facets of the global economy—consumer spending, business investment (CapEx), and fiscal policy—are driving economic growth in the US, Europe, and Asia. The conversation moves beyond monetary policy to dissect the underlying economic forces shaping 2026, with a particular focus on income dynamics, investment trends, and regional policy choices.

Key Themes and Discussion Points

1. US Consumer Spending: The K-Shaped Reality

Speaker: Michael Gapen
Timestamp: 00:49–02:05

• Upper-income households drive at least 40% of US consumer spending.
• Inflation disproportionately impacts lower and middle-income groups, but strong asset markets (stocks, housing) support sustained spending from higher earners.
• “There is a K-shaped economy… one of the main risks about the US is that its expansion is narrowly driven. We think that will broaden out in 2026.” — Michael Gapen [01:23]
• With expected easing of inflation and reduced impact of tariffs in 2026, spending power may broaden to more segments of the population.

2. US CapEx (Business Investment): The AI Story and Beyond

Speaker: Michael Gapen
Timestamp: 02:05–04:01

• AI-related spending dominated US business investment in 2025.
• Other forms of CapEx (residential, traditional non-residential) were subdued due to policy uncertainty.
• AI investments are substantial and multi-year; not all CapEx is reflected directly in GDP due to imports and intermediate goods.
• A broadening in business investment depends on a broadening in consumer spending—cyclical recovery and improvements in labor markets could spur non-AI CapEx.
• “You can have a heck of a lot of CapEx… but that doesn’t diminish the quality of the story.” — Michael Gapen [02:46]

3. Euro Area Growth and German Fiscal Policy

Speaker: Jens Eisenschmidt
Timestamp: 04:01–07:00

• Euro area growth is “a little bit more complicated”—mixed outlooks across member countries.
  • Germany has the most potential to accelerate, primarily due to robust fiscal stimulus.
  • France and Italy expected below potential; Spain, while strong, remains a small part of the bloc.
• Accelerating, but only mildly—significant above-potential growth likely by late 2027.
• German fiscal stimulus is exceptional in scale and positioning, but implementation lags and external risks (trade frictions) mean immediate effects are unlikely.
• “The direction of travel is clear enough… but it won’t be immediate.” — Jens Eisenschmidt [06:23]

4. China’s Macro and Micro Dynamics in 2026

Speaker: Chet Naya
Timestamp: 07:00–10:56

• Macro: China’s main challenge remains deflation; some easing is expected but not a full exit in 2026.
• Micro: Growth in advanced manufacturing, leading to increased global export market share (“micro positives”) despite sluggish domestic demand.
• Recent export upside surprises bolster the microeconomic narrative even as the broader economy struggles.
• Currency and the Renminbi:
  • Many question whether the People’s Bank of China (PBoC) will allow significant currency appreciation amid recent RMB strengthening.
  • “As long as the economy is in deflation, it will be very difficult for PBoC to allow significant currency appreciation.” — Chet Naya [09:31]
  • RMB appreciation would likely hinder, not help, rebalancing and domestic consumption by exacerbating deflation and undermining corporate revenues.

5. Broader Asian Growth Beyond China

Speaker: Chet Naya
Timestamp: 10:56–12:09

• Exports remain key for Asian growth.
• In 2026, expect a turnaround in non-tech exports to complement existing tech strength, leading to broader regional GDP growth.
• “Particularly the non-China part of the region will be seeing a meaningful improvement in their export growth, real GDP growth and nominal GDP growth in 2026.” — Chet Naya [11:59]

Notable Quotes & Timestamps

• “There is a K-shaped economy… one of the main risks about the US is that its expansion is narrowly driven. We think that will broaden out in 2026.”
  — Michael Gapen [01:23]

• “You can have a heck of a lot of CapEx… but that doesn’t diminish the quality of the story.”
  — Michael Gapen [02:46]

• “The direction of travel is clear enough… but it won’t be immediate.”
  — Jens Eisenschmidt [06:23]

• “As long as the economy is in deflation, it will be very difficult for PBoC to allow significant currency appreciation.”
  — Chet Naya [09:31]

• “Particularly the non-China part of the region will be seeing a meaningful improvement in their export growth, real GDP growth and nominal GDP growth in 2026.”
  — Chet Naya [11:59]

Rapid-Fire Segment: Policy Implications & Scenarios

US: What would a rapid AI adoption mean for Federal Reserve policy?

• Higher productivity (~3% growth), disinflation, possible rate cuts—though the Fed may be slow to adjust as it weighs data showing strong growth and falling inflation.
  — Michael Gapen [12:27]

Europe: Impact of potential US tariffs on European goods?

• 10% tariffs could cut GDP growth by 30–60 basis points (~half the region's expected growth in 2026), with higher risk if Europe retaliates.
  — Jens Eisenschmidt [13:23]

China: What might spur a full-blown demand-driven fiscal stimulus?

• While unlikely, a major social stability issue could prompt a policy pivot toward boosted social welfare spending for workers, especially migrants.
  — Chet Naya [14:17]

Timestamps for Key Segments

• US Consumer Spending: 00:49–02:05
• US CapEx & AI: 02:05–04:01
• Euro Area Growth: 04:01–07:00
• China’s Macro & Micro Dynamics: 07:00–10:56
• Exports & Broader Asian Growth: 10:56–12:09
• Rapid-Fire Policy Questions: 12:09–14:47

Tone and Style

The conversation retains a thoughtful, analytical, and modestly optimistic tone. The economists emphasize nuance, uncertainty, and the need for patience when interpreting growth stories—especially in the face of implementation lags, policy risks, and economic heterogeneity.

For anyone tracking major economic trends in 2026, this episode offers succinct, insider commentary on what’s sustaining and what could soon reshape momentum in the world’s major economies.