New forces are reconfiguring the global economy. While the big shocks of the past five years have largely worked their way through the system, geopolitics and national policy choices are creating a more fragmented world.
Monetary policymakers have so far done a good job of curbing high inflation without slamming the brakes on growth. The world economic outlook is therefore benign and global price pressures are expected to abate further, allowing major central banks to keep cutting interest rates. However, the risk of inflation remains, and the Federal Reserve may need to adapt to a potential shift in US policies.
The best investment opportunities will be found by drilling into sectors that are likely to benefit from the big themes that will dominate the coming years. Meanwhile, anomalies - such as low market volatility in a time of high uncertainty, or the resilience of the US consumer in the face of the sharpest tightening cycle in decades - are becoming more marked and may not last. A reversal of such phenomena could see inflation-linked debt and gold find more favour. Geopolitical tensions may also stoke demand for safe havens and highlight the need for greater diversification.
“In a world of anomalies, there are plenty of bright spots. Identifying the opportunities created by policy choices and geopolitical shifts will be as important as safeguarding against the risks they entail.”
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