Market Perspectives: Five-Year Outlook

All pulling together (10% probability)

5-year-outlook-all-pulling-together-header

Global Investment Forum: Five-Year Outlook

If the ‘Power to the People’ scenario reflects the negative impact of populism, then ‘All Pulling Together,’ is an optimistic scenario in which countries find ways to work together to address trade; political parties find constructive, unifying solutions to issues; and the labor force globally is invigorated. This scenario sees the successful implementation of centralized policies overcoming the downward pressures on productivity and employment to stimulate growth.

The policies work

In a repeat of a theme that was also drawn out last year, this scenario assumes that policymakers around the globe get it right for longer, i.e., where monetary policy has been implemented it gains traction and we see that its effect has lagged rather than been absent. Equally, where fiscal policy is implemented, it is done smoothly and has a positive impact. Infrastructure projects are able to get up and running without the usual time lags from concept to delivery and their impact delivers positive changes.

In Europe, we anticipate that effective implementation of centralized policies will see financial improvements through recapitalization and reflation. Investment injections work as businesses with fully employed workforces begin to invest. Globally, productivity picks up in response to the policy stimuli and has a beneficial effect on consumer confidence and sentiment, encouraging people to spend rather than save. Increased market confidence means that the labor supply is at capacity.

In emerging markets, the structural commodity problems are left behind and the consistent increase in growth seen through 2016 continues. The threat to global trade recedes as countries regain confidence in the idea of globalization and currency wars become less necessary.

Stimulating effect of new technology

The current low yield environment and reasonably high savings ratio across the developed world gives new ventures easy access to capital. The impact of new technologies, while increasingly described as disruptive, have the potential to deliver a positive step change to industry. Examples include:

  • the sharp pick up in internet penetration driven by the rise of the smartphone;
  • the advancement in battery storage technology in combination with the improvement in efficiency and effectiveness of power generation through wind and solar; and,
  • the development of 3D printers, which reduces working capital needs and makes replication easier

We can also see the rise of the sharing economy (e.g., ZipCar and Uber) is improving the efficiency with which assets are used. New business models are also very asset-light, e.g., Airbnb and Uber (again), which further accelerates their development and stimulates existing established markets to also evolve to become more responsive.

 

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Slow and steady wins the race (70% probability)
‘Slow and steady wins the race,” which focuses on the prospect of continued marginal incremental improvements in global economic growth.

 

Power to the people (20% probability)
‘Power to the people,’ reflecting the negative implications of populism and associated ramifications.

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