What is the outlook for the global economy over the next 10 years?

Positive, argues 𝑆ℎ𝑜𝑐𝑘𝑠, 𝐶𝑟𝑖𝑠𝑒𝑠, 𝑎𝑛𝑑 𝐹𝑎𝑙𝑠𝑒 𝐴𝑙𝑎𝑟𝑚𝑠, a new book about assessing macroeconomic risks.

The authors divide macroeconomic risks into three types: real, financial, and geopolitical. In each area, there is reason for optimism.

In the real economy, the 2020s looks more promising than the 2010s. Job markets are tight, which is leading to more pressure on firms to improve productivity. The emergence of AI technology will boost growth. Overall, the environment looks more similar to the 1950s or the 1990s than the 2010s.

Because of tighter job markets, inflation will be higher this decade than in the 2010s, but not so high as to become a real problem. U.S. interest rates could average 4%, still a healthy level. A return to 1970s-style inflation seems unlikely, because that would require an institutional breakdown at central banks.

In terms of geopolitics, although there has been much talk about rising trade barriers and the worsening rivalry between the US and China, the book argues that these problems can be overstated. Trade barriers will remain low enough that trade will continue to flourish, while great power conflict is difficult to predict and does not always happen.

Overall, there are grounds for a constructive stance towards the future of the global economy. We should be “rational optimists” and discount any doom-mongering, the book concludes.

As investors, this is the right approach to take by default. The media is full of negative stories because those generate clicks, but reading only about wars and other shocking events does not paint a balanced picture. By almost any measure the current economy is very good indeed.

Macroeconomic risks will always exist, but the way to make money out of them is often not so much about holding a low-risk portfolio in preparation, or speculating about which exact risk is going to appear precisely when, but reacting correctly once a risk does appear. Like decades before it, the 2020s will undoubtedly offer many opportunities to make money from major macro events and trends.

One macro trend I expect is US dollar depreciation. It will be the subject of a future update.

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Portfolio changes
National Grid, British American Tobacco, EDP and Carrefour were sold. Vinci, Unite, Deutsche Bank and Gecina were bought.