There is a 60 per cent likelihood the global economy will continue to grow at a steady pace with modest inflation, says BMO Global Asset Management's Five-Year Outlook report.
Released Nov. 21, the report presents three possible scenarios for the global economy's future over the next five years.
The first scenario, which the report says is most likely to occur, forecasts that the economy will grow at a steady pace with modest inflation. As a pre-condition, Europe must surpass the United States and lead the world in economic growth. “With the world economy remaining in good shape and healthy profit margins being maintained, risk assets should generally do well in this scenario,” says BMO GAM’s report.
The second scenario is that policy errors would impact economic growth. This scenario has a 30 per cent chance of occurring, and could lead to a global recession. “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,” says the Outlook report.
The third scenario, which BMO GAM says only has a 10 per cent likelihood of occurring, is that central banks bring back economies to full employment without hiking inflation. Central bank balance sheets and interest rates would be smoothly normalized.
Global Investment Forum
"The findings in this report reflect the key themes presented at our Global Investment Forum," says Richard Wilson, chief executive officer and chief investment officer, BMO Global Asset Management. "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."