Halfway through the decade, new forces are reconfiguring the post-pandemic global economy. The big shocks that hit labour markets, supply chains, and energy prices in the past five years have largely worked their way through the system. But geopolitics and national policy choices are creating a more fragmented world that may bring new surprises.
Opportunities in a reconfigured world
- The global economic outlook is benign as monetary policymakers have curbed high inflation without triggering a recession. Abating price pressures will allow major central banks to cut rates further but the easing cycle will end well before policy rates reach pre-pandemic lows.
- Geopolitics and national policy choices are paving the way for more fragmentation, with the United States pursuing geostrategic competition and the European Union focusing more on strategic autonomy. Drilling into sectors that will benefit from big trends is important given this backdrop and valuations.
- Anomalies, such as low equity market volatility at a time of uncertainty, are becoming marked and may not last. A reversal of such phenomena could see assets like inflation-linked debt and gold find more favour.
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, with a slowdown in US activity unlikely to turn into recession. Meanwhile, global price pressures are expected to ease further. US policy shifts pose some upside risks, but ultimately, no one has an interest in seeing inflation surge.
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