The medium-term outlook for global asset prices is dominated by five interconnected secular trends: excessive debt, population ageing, rapid technological change, rising populism and deglobalization. In coming years, these five trends are likely to prompt a once-in-a-generation shift in the global policy regime.
Many of these trends are, however, already having an impact. Nowhere is that more obvious than for populism, which is steadily gathering force across Europe.
European Elections: Tip of the Iceberg
This week’s European elections, for example, look set to show a surge in support for populist parties. Being Europe, this is unlikely to herald any immediate policy change, but it makes much-need integration more difficult and highlight the ever-widening gulf between Europe’s citizens and its leaders.
The European elections are, however, just the tip of the iceberg as far as populism is concerned. More significant, is the ongoing trade war between the US and China which has already slowed global growth and is a clear indication that the rules governing global trade are about to change. Global trade integration has probably passed peak levels while pressure for de-globalization and a fairer distribution of wealth is rising fast.
From National Politics to Inflation Pressures
Other important changes are underway at a national level. In the UK, support for the Conservative government has finally buckled under the strain from Brexit, raising the risk of an early election and possibly a victory for a Labour government that would prioritize redistribution and public ownership in a way not seen since the 1970s. In the US, there’s growing support for once unthinkable approaches like Modern Monetary Theory, which would inevitably lead to greater government intervention, and signs that the Fed might soon start to more actively pursue higher inflation.
As Brexit and the US/China trade dispute demonstrate, trying to predict exactly how each populist event plays out is a near impossible task. But we can make some general observations. Most important, after a 40-year period in which capital has won out decisively over labour, is the likelihood that global economic policy is likely to shift back in a much less business-friendly direction. Not only will that weigh on economic growth, it’s also likely to push inflation higher. And that’s something markets are not currently prepared for.
