Northern Trust’s 5-Year Forecast Sees Economic Conditions Generating Global Stock Returns in 5.5% – 8.8% Range

Growth Cycle to Continue, Inflation and Rates to Remain Low

September 17, 2018 — CHICAGO & LONDON–(BUSINESS WIRE)–The global economy will experience 2.5 percent real average annualized growth over the next five years, along with controlled inflation and accommodative monetary policy, according to Northern Trust’s Capital Market Assumptions five-year outlook, The firm predicts that, interest rates will remain low and below investor expectations, with inflation continuing to be held in check by the same structural forces, including technology, that have kept it muted for years.

The report foresees “good-but-not-great” returns from equities and low-but-mostly-positive fixed-income returns. The highest average annualized equity return is forecast for Asian emerging markets at 8.8%, with overall emerging markets at 8.3%. The U.K. and Europe are at 6.3%, and Japan is at 6.0%. The U.S. is at 5.8% and Canada is lowest at 5.5%. On a global basis, Northern Trust’s equity forecast is higher than current stock valuations suggest. Its expectation for modest fixed-income returns across the globe is based on interest rates remaining low with a small difference between short-term and long-term rates.

The Capital Markets Assumptions report, featuring long-term asset class return expectations and forecasts, is produced annually and informs the investment decisions and asset allocation recommendations made by Northern Trust, which has $1.1 trillion in assets under management.

Investment Themes

The asset class forecasts are informed by six themes identified by Northern Trust that are driving markets. The report points to aging populations, transitioning emerging economies and elevated debt levels as causes behind the global economy’s slow growth trajectory, and notes that many investors see a recession soon approaching. “We see that some investors, concerned about that the length and pace of the current growth cycle, are increasingly focused on a potential recession – but we feel they may be suffering from a case of Mild Growth Myopia, Northern Trust Chief Investment Strategist Jim McDonald said. “The same forces that have been keeping a lid on growth have helped to both buffer downturns and extend the cycle itself.”

Rooted in the firm’s deep capital market analysis, the forecast includes Northern Trust’s expectation that interest rates will remain below what many investors are anticipating. Stuckflation is the investment theme that they see largely responsible for low rates.

“Over the course of this nearly 10-year expansion period, we’ve seen investors respond to persistently low and durable structural inflation by altering their investment behaviors,” Northern Trust Chief Investment Officer Bob Browne said. “Add to this mix the fact that most central banks fell well short of their two percent annual targets over the past decade, and we don’t see an immediate change on the horizon.” The report states that monetary policy adjustments and trade frictions will produce uncertainties and pockets of inflation, but that companies and consumers will continue to find ways to alleviate such pricing pressures.

ver the course of this nearly 10-year expansion period, we’ve seen investors respond to persistently low and durable structural inflation by altering their investment behaviors...

Pass/Fail Monetarism is a third investment theme the firm believes investors must watch in the years ahead. Central banks are operating in an environment that differs from historic norms, when aggressive or active policy making was expected in reaction to financial market conditions. Now, with stricter financial market regulations in place, central banks should act more cautiously than in the past.

“We believe central banks are really in uncharted territory. Without a clear map for policy normalization, it’s not possible to grade the efforts of central banks. But, let’s be clear: in order to pass, they simply must not fail,” said Browne. “To stay out of the spotlight, central banks should – and will – pay less attention to any potential pockets of cyclical inflation and more attention to avoiding a premature end to this lackluster economic expansion. A premature end could result if central banks raise rates in order to be prepared for the next downturn.”

The full report, which outlines the firm’s long-term asset class return expectations and forecasts for the next five years, is available at




About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 23 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2018, Northern Trust had assets under custody/administration of US$10.7 trillion, and assets under management of US$1.1 trillion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit or follow us on Twitter @NorthernTrust.
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