We think populism is here to stay and that it will be a persistent part of the investment backdrop for many years to come.

What populism, in particular what the trade tension that we’ve seen over the last year, does is to alter the mix or the trade-off between economic growth and inflation. So particularly for trade tension, what that does is, it will lead to somewhat lower growth. And it will probably also lead to somewhat higher inflation through, for example, increasing tariffs, etc. So as that happens, lower growth, higher inflation, that’s an environment which will make it more difficult for risk assets to make headway.

When we entered 2018, it looked as if all the economies of the world were sort of firing ahead on all cylinders. Now we’ve learned over the last six to nine months that that’s not the case. Trade tension is part of that story. As we look ahead and we look at the major regions of the world, we expect pretty much all of them to slow down to some extent.

At the same time, wage growth, particularly in the developed markets, is starting to increase. So slower growth, faster wage growth, somewhat higher inflation, that also tends to mean that central banks will continue to gradually tighten monetary policy. But it’s a more challenging environment than we’ve been used to over the last two or three years.

Both of those countries have big internal markets, they’re relatively closed economies.

It’s the other economies of the world, the smaller economies, which are much more dependent upon international trade, which are likely to find themselves at a disadvantage. And that’s why, for example, this year, although trade tension has sort of started in the US, the US economy’s doing really well. It’s, if anything, it appears to be going from strength to strength, whereas when you look outside of the US you’ll begin to see the first signs of cracks in global growth. And that’s where we begin to see evidence of activity slowing.

Both of those are obviously important factors to take into account when we’re thinking about the global economy next year and then the outlook for asset prices and bond yields. But they’re not, they’re not the only factor at play. For example, over many years, the Fed barely moved its balance sheet, yet the private sector created a lot of credit. Since the global financial crisis, the Fed’s massively increased its balance sheet and yet not all that much private sector credit is being created.

So, as we look ahead, yes, we know the Fed will start to shrink its balance sheet. We know the ECB will probably join it at some point in the next couple of years. But they’re doing that because they think the economic environment is improving. We should also take some comfort from the fact that if the economic environment started to deteriorate, then it is easily within their power to reverse those processes.

The global economy is growing at a pretty decent rate at the moment. It’s growing at a very decent rate in the US, less so elsewhere. But it’s still growing everywhere else. Unemployment is low and coming down in almost all countries. So, we’re in quite a nice place. And I don’t think we should be too scared about the likelihood that the global economy will slow a little bit next year.

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