BlackRock Investment Institute

Davos Brief

Jan 22, 2018
By Philipp Hildebrand

“Creating a shared future in a fractured world” is the theme uniting leaders at the 2018 World Economic Forum. We know this is perpetual work. The BlackRock Investment Institute aims to connect the dots for clients and investors, and we share a sample of our global insights here.

Highlights

  • Macro outlook: BlackRock Investment Institute's analysis of the global economy reveals steady, synchronised growth. Consensus estimates have caught up with our outlook, but the US tax overhaul and a potential increase in government spending are set to boost economic activity. This stimulus will likely shorten the expansion’s lifespan, but we believe the US cycle still has a few years before it peaks. It could last even longer if the eventual overheating is contained.
  • Geopolitics: The geopolitical backdrop is becoming less stable. Our barometer of geopolitical sensitivity is running at elevated levels. We find geopolitical shocks generally have a short-lived impact on global risk assets when the economy is strong. Trade tensions, however, are shaping up to become a significant threat in 2018.
  • Financial markets: We identify three key market themes for 2018. The first focuses on our positive outlook for risk assets in the global expansion. The second gauges the implications of an inflation re-awakening in the US and monetary policy divergence likely to result. The third acknowledges the rewards for risk-taking will likely be more muted this year.
  • Topics and trends: What keeps our portfolio managers up at night? We highlight the latest conversation topics and debates. We then outline our medium-term return expectations, revealing a preference for equities. Lastly, our long-run themes dissect the importance of incorporating climate change into investment strategies and tapping private markets for diversification and broader opportunities.

Snapshot

The US expansion is on course to become the longest on record, stirring concerns it is about to run out of steam. But is it? Recently enacted tax cuts, incentives for capital investment and higher federal spending could add 0.8 percentage point to US GDP growth in 2018, we estimate. This could tip the balance toward accelerating growth. The Fiscal fuel chart shows how such a booster could shorten the cycle’s expiration date to two or three years (the orange-shaded area). If growth stays near its tepid post-crisis average, the expansion may last longer (the blue area).

Chart: Fiscal fuel for expansion
Philipp Hildebrand
Vice Chairman
Philipp Hildebrand, Vice Chairman, is a member of the firm’s Global Executive Committee. He leads and oversees the activities of the BlackRock Investment Instit