Northern Trust’s 5-Year Market Forecast Calls for Global Economy to Grow by 2.9%
- Annualized Inflation to Reach 1.7%
- Low Interest Rates to Foster Positive but Low Returns
- Global Equity Return Forecast to Reach 4.6%
The annual Capital Market Assumptions report features five-year average annualized return expectations and forecasts for a wide range of asset classes. Rooted in the firm’s deep capital market analysis, it informs the investment decisions and asset allocation recommendations made by
“In our view, investors can expect continued global economic growth, but at a pace that reverts to its longer term mean – what we call a ‘reversion to mediocrity’,” said
Equity market returns in the past five years have outpaced even the most optimistic forecasts. While valuations forecasted 5% annual equity market returns, they in reality achieved 15%. But, based on historical trends,
For developed markets,the Capital Market Assumptions report forecasts the highest equity returns for the
The outlook for fixed income calls for persistently low interest rates fostering positive but low returns over the next five years. The report notes longer dated and lower credit bonds look relatively attractive.
In the report’s real assets forecast,
The Capital Market Assumptions report’s asset class forecasts are driven by six key themes that
- Reversion to Mediocrity: After a brief breakout, global economic growth will revert to its longer-term mean. Debt-fueled demand will subside and automation will contain inflation. This will lead to continued low interest rates, especially as insatiable fixed income demand persists.
“Reversion to the mean will subdue equity returns as global economies slow,” adds McDonald. “The past year’s gains leave less room for margin and valuation expansion.”
Sticking to Stuckflation:
“Stuckflation”appears in the Capital Market Assumptions for the sixth consecutive year. The report notes that without a coordinated policy response from central banks, future inflation will reflect the past decade more than the past year, supporting financial markets.
Northern Trustexpects developed markets, on a weighted-average basis, to experience annualized inflation of 1.7% over the next five years – as compared to the 2% targeted by most central banks.
“We are sticking to ‘stuckflation’ despite very accommodative central banks,” said
: Monetary policy is entering a new, more “activist” stage. Central banks have realized that the funding they provide can be leveraged to target systemic risk to growth and inflation such as climate change and income inequality.
Northern Trustexpects continued accommodative policy across central banks throughout the five-year horizon.
Technology is the new oil – but with greater economic security impacts. Both sides of the
West-Chinadivide appreciate the importance of technological independence and the requisite raw materials to get there. We expect major investment toward this aim, and further economic division.
- The Evolving Capitalist: Investors and business leaders recognize that they must evolve from today’s “winner-take-all” capitalism. Solutions to address income gaps and the needs of all stakeholders – as opposed to just shareholders – will slowly lead to a more sustainable version of capitalism.
- Reaching Climate Consensus: A consensus is emerging on the importance of fighting
climate change, and it is increasingly market-driven. Investors are fueling the green transition, driving real corporate action more quickly and forcefully than politicians ever could. The report notes: “difficult economic tradeoffs loom large.”
The full report, which outlines the firm’s long-term asset class return expectations and forecasts for the next five years, is available at capitalmarketassumptions.com.
About Northern Trust Asset Management
Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments, so they can confidently realize their long-term objectives. Entrusted with
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