Northern Trust’s 5-Year Market Forecast Calls for Global Economy to Grow by 2.9%

  • Annualized Inflation to Reach 1.7%
  • Low Interest Rates to Foster Positive but Low Returns
  • Global Equity Return Forecast to Reach 4.6%

The global economy will experience annualized real growth of 2.9% over the next five years, along with annualized inflation of 1.7% in developed markets, according to Northern Trust’s Capital Market Assumptions Report, which is a five-year outlook. The firm predicts the persistently low interest rates will foster positive but low returns, with technology remaining a potent force that will mute inflation. In the meantime, more central banks are expected to broaden their objectives to include fighting income inequality and climate change, leading them to continue to provide monetary stimulus.

The annual Capital Market Assumptions report features five-year average annualized return expectations and forecasts for a wide range of asset classes. Rooted in the firm’s deep capital market analysis, it informs the investment decisions and asset allocation recommendations made by Northern Trust, which as of June 30, 2021, had US$1.5 trillion in assets under management.

“In our view, investors can expect continued global economic growth, but at a pace that reverts to its longer term mean – what we call a ‘reversion to mediocrity’,” said Jim McDonald, Northern Trust’s chief investment strategist. “And, for the sixth consecutive year, we don’t see inflation making any drastic moves: we’re calling for ‘stuckflation’ to continue, with inflation coming in at an annualized 1.7%, below the 2% targeted by most central banks.”

Equity market returns in the past five years have outpaced even the most optimistic forecasts. While valuations forecasted 5% annual equity market returns, they in reality achieved 15%. But, based on historical trends, Northern Trust expects a return to subdued but positive returns in the next five years, lowering its forecast for five-year annualized global equity returns slightly to 4.6%. This 0.3 percentage-point reduction from last year’s report is driven by the U.S. forecast return of 4.3% – at the low end of developed market regions. The report expects mid-single-digit annualized returns.

For developed markets, the Capital Market Assumptions report forecasts the highest equity returns for the UK, set at 6.2%, as it finds its post-Brexit bearings. Europe, at 4.7%, should also benefit from increased stability as well as a longer-tailed post-pandemic recovery. Emerging market equity returns will continue to be driven by China, which accounts for approximately 35% of the MSCI Emerging Markets index, and where regulatory risk has depressed valuations.

The outlook for fixed income calls for persistently low interest rates fostering positive but low returns over the next five years. The report notes longer dated and lower credit bonds look relatively attractive.

In the report’s real assets forecast, Northern Trust identifies continued pressure on commodity supplies will likely support natural resources returns, boosting the total return forecast, from last year’s report, by 1.4 percentage points to 5%.

Investment Themes

The Capital Market Assumptions report’s asset class forecasts are driven by six key themes that Northern Trust investment experts see affecting markets and the economy over the next five years, and drive Northern Trust’s asset class outlooks:

  • Reversion to Mediocrity: After a brief breakout, global economic growth will revert to its longer-term mean. Debt-fueled demand will subside and automation will contain inflation. This will lead to continued low interest rates, especially as insatiable fixed income demand persists.

“Reversion to the mean will subdue equity returns as global economies slow,” adds McDonald. “The past year’s gains leave less room for margin and valuation expansion.”

  • Sticking to Stuckflation: “Stuckflation”appears in the Capital Market Assumptions for the sixth consecutive year. The report notes that without a coordinated policy response from central banks, future inflation will reflect the past decade more than the past year, supporting financial markets. Northern Trust expects developed markets, on a weighted-average basis, to experience annualized inflation of 1.7% over the next five years – as compared to the 2% targeted by most central banks.

“We are sticking to ‘stuckflation’ despite very accommodative central banks,” said Wouter Sturkenboom, chief investment strategist for Europe, the Middle East, Africa, and the Asia-Pacific region. “Inflation and central banks are forever locked in a dance, leaving investors to determine the lead. And with the timeline for bold action reset, ‘stuckflation’ will live on for now.”

  • Monetary Activism: Monetary policy is entering a new, more “activist” stage. Central banks have realized that the funding they provide can be leveraged to target systemic risk to growth and inflation such as climate change and income inequality. Northern Trust expects continued accommodative policy across central banks throughout the five-year horizon.
  • Seeking Tech Independence: Technology is the new oil – but with greater economic security impacts. Both sides of the West-China divide appreciate the importance of technological independence and the requisite raw materials to get there. We expect major investment toward this aim, and further economic division.
  • The Evolving Capitalist: Investors and business leaders recognize that they must evolve from today’s “winner-take-all” capitalism. Solutions to address income gaps and the needs of all stakeholders – as opposed to just shareholders – will slowly lead to a more sustainable version of capitalism.
  • Reaching Climate Consensus: A consensus is emerging on the importance of fighting

climate change, and it is increasingly market-driven. Investors are fueling the green transition, driving real corporate action more quickly and forcefully than politicians ever could. The report notes: “difficult economic tradeoffs loom large.”

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 a global presence with offices in 22 U.S. states and Washington, D.C., and across 23 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2021, Northern Trust had assets under custody/administration of US$15.7 trillion, and assets under management of US$1.5 trillion. For more than 130 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Please visit our website or follow us on Twitter.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Please read our global and regulatory information.

About Northern Trust Asset Management

Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments, so they can confidently realize their long-term objectives. Entrusted with US$1.2 trillion of investor assets as of June 30, 2021, we understand that investing ultimately serves a greater purpose and believe investors should be compensated for the risks they take — in all market environments and any investment strategy. That’s why we combine robust capital markets research, expert portfolio construction and comprehensive risk management to craft innovative and efficient solutions that deliver targeted investment outcomes. As engaged contributors to our communities, we consider it a great privilege to serve our investors and our communities with integrity, respect, and transparency.

Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Belvedere Advisors LLC and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.


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