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The Long Run

Long Run Returns Monitor

Long Run Returns Monitor (Q2)

Our Long Run Returns Monitor provides our updated long-term projected returns for major asset classes, as well as a summary of the macroeconomic forecasts which underpin them. All projections in this publication are as of 9th May 2022. See a more detailed explanation of our views in our Long Run Economic Outlook and Long Run Asset Allocation Outlook.

12 May 2022

Global Economics Update

Higher inflation chipping away at public debt ratios

One benefit of the current rise in inflation, at least for governments, is that it is eroding the real value of public sector debt. But this will reverse only a small part of the pandemic-related rise in government debt ratios in DMs. And the impact on government borrowing is less helpful; indeed, higher inflation will have an increasingly adverse impact on governments’ debt servicing costs as interest rates and bond yields rise. In view of the subject relevance, we are also sending this Global Economics Update to clients of The Long Run. Markets Drop-In (11th May, 10:00 EDT/15:00 BST): We’re discussing our Q2 Outlook reports and what they say about the potential performance of bonds, equities and FX rates as inflation peaks in a special 20-minute briefing on Wednesday. Register now.

10 May 2022

Long Run Update

Which COVID-behavioural changes are permanent?

We argued two years ago that the pandemic would accelerate changes that were already underway rather than trigger behavioural changes out of the blue. Now that most restrictions have been removed in advanced economies, spending on services and recreation are recovering quickly as we expected. The shift to hybrid working seems set to persist, but there is little evidence that this has affected productivity growth in either direction so far.

6 May 2022

Our view

We do not expect the pandemic to do permanent damage to global economic growth as vaccines allow activity to resume. There will be sustained behavioural changes, but these need not be negative. Note, for example, that technology use has accelerated in many advanced economies, supporting our view that future productivity growth will be stronger than most expect. Another key legacy will be higher public debt, but we expect this to be managed through sustained low interest rates and by central banks tolerating a significant rise in inflation. The increased pushback against globalisation has strengthened our conviction that EM catch-up will slow. Meanwhile, the green energy intensive fiscal stimulus around the world has brought forward the likely timing of peak oil demand, which will weigh on oil prices and see some EMs struggling to diversify.