TORONTO, CHICAGO, LONDON and HONG KONG, Nov. 21, 2017 /CNW/ - BMO Global Asset Management
today released its annual Five-Year Outlook report, which
examines the trends expected to dominate the global economy and
markets over the next five years (2018-2023).
The report has placed a 60 per cent likelihood that the global
economy will continue to grow at a steady pace with modest
inflation. The report highlights three scenarios of which the
'Steady As She Goes' scenario is expected to play out over the next
five years.
Scenario #1: Steady As She Goes
According to BMO Global Asset Management's 'Steady As She Goes'
base-case scenario, the global economy is set to continue growing
at a steady pace with modest inflation. The gradual withdrawal of
monetary accommodation, in the form of higher interest rates and
reduced quantitative easing, is likely to be tempered by muted
inflation pressures and flexible markets, reducing these headwinds
to a gentle breeze rather than a disruptive gale.
The report cautions that, as a pre-condition, Europe must surpass the U.S. and lead the
world in growth. With the world economy remaining in good shape and
healthy profit margins being maintained, risk assets should
generally do well in this scenario. Gradual tightening by central
banks is a headwind, albeit a mild one, which will limit overall
returns. Government bonds are likely to underperform and with
spreads likely to widen, corporate bonds could fare even worse.
Scenario #2: Policymakers Pull the Punchbowl
In 2018, the risk of a downside scenario has increased given
concerns over policy errors. The second scenario, 'Policymakers
Pull the Punchbowl,' which is given a 30 per cent chance of
happening – suggests that a global recession is a threat. This is
because of two reasons: past monetary policy may have
over-stimulated the markets; subsequently this could fuel further
inflation, which might then coincide with the quantitative tapering
and exaggerate the impact. This could lead the U.S. first into a
recession, followed by the rest of the world.
On the flip side, central banks may take an aggressive approach
to unwinding. The pace of tightening could be too fast, resulting
in an economic downturn, a squeeze in corporate profits and a
global recession.
This recession-based scenario would ultimately see a significant
correction in equity markets and a rally in bonds. Government bonds
could sell off in the early stages of this scenario as inflation
and interest rates rise, before rallying hard as equities
underperform – kick-starting a recession.
Scenario #3: Perfect Policy Prevails
The third scenario, 'Perfect Policy Prevails,' – to which BMO
Global Asset Management has assigned a 10 per cent likelihood –
suggests that central banks are successful at bringing economies
back to full employment smoothly, without pushing up inflation. It
also suggests that central bank balance sheets and interest rates
are normalised in a smooth manner, which ensures consistent market
and investor behaviour. In this 'perfect world;' risk assets
perform strongly, bonds come under only limited pressure and
volatility remains low.
Richard Wilson, Chief Executive
Officer & Chief Investment Officer, BMO Global Asset
Management, said:
"The findings in this report reflect the key themes presented at
our Global Investment Forum. We believe that the report helps
investors make sense of the world we are operating in, allowing
them to feel more confident in making informed investment
decisions."
To obtain a copy of the report, visit
www.bmogam.com/fiveyearoutlook
About BMO Financial Group
Established in 1817, and
currently marking its 200th year of operations, BMO Financial Group
is a highly diversified financial services provider based in
North America. With total assets
of $709 billion as of 31 July, 2017, and more than 45,000 employees,
BMO provides a broad range of personal and commercial banking,
wealth management and investment banking products and services to
more than 12 million customers and conducts business through three
operating groups: Personal and Commercial Banking, Wealth
Management and BMO Capital Markets.
About BMO Global Asset Management, part of BMO Financial
Group
BMO Global Asset Management is a global investment
manager with offices in more than 25 cities in 14 countries,
delivering service excellence to clients across five continents.
Our four major investment centres in Toronto, Chicago, London and Hong
Kong are complemented by a network of world-class boutique
managers strategically located across the globe: BMO Real Estate
Partners, LGM Investments, Pyrford International Ltd. and Taplin,
Canida & Habacht, LLC. BMO Global Asset Management is a
signatory of the United Nations-supported Principles for
Responsible Investment initiative (UNPRI).
For more information on BMO Global Asset Management, visit
www.bmogam.com
SOURCE BMO Financial Group