In its latest major study of markets, Netherlands-headquartered global manager Robeco addresses the question: “is secular stagnation for real?” The study on expected returns for the next five years, entitled “Coming of Age”, thinks stagflation is unlikely.
The report says that the phenomenon of stagflation – which was a scourge of the 1970s in the western economies – occurs when a range of factors cause a breakdown in the relationship between savings and investment. It hasn’t been seen since the ‘lost decade’ in Japan in the 1990s.
Left unchecked, it leads to economic stagnation. Fears for it have been rising, due to continued low growth, historically low interest rates, and human development issues such as globalization and aging, the paper says.
Although a number of arguments for secular stagnation hold water, their influence has diminished, our new five-year outlook believes as part of a wider set of fairly optimistic predictions. There are many solutions to avoid it, though secular stagnation remains a complex issue.
So long as disinflation can be kept in check, and deflation is avoided at all costs, secular stagnation is unlikely to materialize in full.
The manager predicts that emerging markets will outpace developed markets over the next five years, with a predicted increase of 6.25 per cent a year, versus 5.00 per cent for developed markets. European (German) bonds will continue to decline.
Greg Bright is publisher of Investor Strategy News (Australia)