Nirvana or nowhere? Where the economy is headed

No one can predict the future, but take a look at these potential economic scenarios, courtesy of BMO’s five-year outlook for 2017 to 2022.

• Slow and steady wins the race.

The most likely scenario (70% probability) is a stable continuation of a U.S.-led global recovery. Emerging markets expand at a faster rate on the back of rebounding commodity prices, and governments turn to fiscal policy to kickstart growth. Bonds yields continue to suffer, but the outlook for equities remains positive.

Read: Alternatives to 60/40 portfolios

• Power to the people.

The downside scenario (20% probability) calls for decreased productivity and an aging working population to stall U.S. growth and lead to a recession. Uncertainty in the EU creates volatility and poor growth. Global growth stalls, as monetary policy is no longer effective. Cue the populist backlash, at which point fiscal stimulus measures may be too late.

Read: ECB seen expanding stimulus amid Trump, Italy uncertainties

All these conditions would likely cause equities to nosedive and push investors toward physical assets, such as gold, or yield-generating assets, such as property or high-income equities.

• All for one, one for all.

The most optimistic scenario (10% probability) predicts that global policymakers overcome downward pressures on productivity and unemployment, stimulating economic growth.

Loosening monetary policy causes financial improvements like recapitalization and reflation, and fiscal policy injections create fully employed workforces and stimulate private investment.

Global productivity rises, and consumer confidence increases spending to further boost growth. Emerging markets benefit from increased currency stability, regained confidence in globalization and the commodities recovery.

It could happen, right?

Read the full report here.

Also read: BoC holds rate at 0.5% amid ‘significant economic slack’

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.