In February, Northern Trust Chief Investment Officer Bob Browne told Investment Advisor that thecoronavirus wouldn’t be just a “blip”in the global market, and in fact, wouldhave a major impact.
He was proven right as global markets crashed, companies shuttered, jobsdisappeared and massive governmentstimulus packages were enacted.
Although the pandemic brought global economies to their knees, Brownedoes see at least the U.S. economybouncing back for the rest of this year,largely due to government stimulus. It’s2021 and beyond we have to plan for,he says.
Here are the firm’s six key capitalmarket assumptions and outlook:
1. A BIG RESTRUCTURING
Northern Trust predicts a “positive yetsubdued growth environment,” Brownesays. The trillion-dollar stimuluspumped into the U.S. economy meansgrowth should be fine for the rest of2020, but going forward, he sees U.S.growth just under 2%, while globally itwill be around 2.6%.
Due to the pandemic, companies willprioritize stability over profitability byrerouting supply chains, moving production inside their home countries andbuilding healthier balance sheets.
That means the United States will haveto cut its reliance on products from China,Browne says. But U.S. strength in technology and biotechnology should “shield” itfrom the downside this will cause.
Although many jobs are coming back
due to reopening of businesses in parts
of the country, “There’ll be a restruc-
turing of high unemployment for some
period of time. Lots of jobs will be per-
manently destroyed,” Browne says, such
as in the retail sector and tourism indus-
try. “That means a cautious consumer
and the experience of COVID- 19 won’t
disappear too quickly.”
2. STUCKFLATION TESTED
Trillions of dollars of stimulus moneyhas been pumped into the global economy, but because most of it was usedto prop up people and businesses hurtby the pandemic, the threat of a moneysurge causing higher inflation is low.Further, central banks will allow “somewhat higher” inflation to make up fora decade of low inflation, Browne says.
For the next five years, the bank sees2% inflation for the United States, 1.4%for Europe and 0.3% for Japan.
“I still believe that lower inflation, or
even deflation, is a bigger risk for poli-
cymakers … maybe at some point bond
investors will think they aren’t getting
compensated … but for now they’re will-
ing to accept negative real rates because
they want stable income with princi-
pal stability in a world of uncertainty,”
3. REIMAGINING CAPITALISM
“The pandemic has not only alteredeconomic growth trajectories, it alsohighlighted flaws in the capitalist economic system itself,” the Northern Trustreport states. Specifically, it has forcedcompanies to focus more on stakeholders — employees, customers and community — than shareholders.
“But one societal aim — reducinginequality — has only gotten worse overthe past 40 years,” the report states, noting that today the top 1% of earners inthe United States have 20.5% of pretaxnational income, up from roughly 11%in 1980.
But change is happening, Brownesays, and every large company is “thinking about its obligations to create amore [diverse workforce], to invest backin the community, that we all have astake in making sure society succeeds
By Ginger Szala
6 Economic Predictions for the Future:
Northern Trust CIO
The economy should bounce back this year, but 2021 and beyond are
more uncertain, CIO Bob Browne says.