The Ultimate Goal

Investment Quarterly
Q2 2013

The Ultimate Goal
Inside • The Ultimate Goal • Special report: ‘Abenomics’ • Market focus: frontier markets • Ask the expert: Foreign exchange rate forecasting • Navigating markets • Global data watch

Rapid economic growth is the Ultimate Goal for policy makers. Achieving high rates of economic growth, preferably in a low inflationary environment, is the stuff that generally keeps voters happy and gets politicians re-elected. From an investor perspective as well, strong economic growth, or its absence, can have a big influence on short-term portfolio returns, although the impact on corporate profitability and dividend payments is not always clear cut. Faltering developed world economies and rapidly expanding emerging economies have, together, already produced a dramatic shift in the centre of gravity of the global economy. Populous emerging markets have been instrumental in driving global growth in recent years with countries like China, India and Indonesia growing much more rapidly than developed world economies. We believe this is likely to continue to be the case with the developed world effectively locked into low growth for an extended period. Much of the eurozone risks a re-run of the Japanese post-1980s’ experience with a decade (maybe more) of low growth, even if structural reforms are enacted to improve competitiveness. This fate also looks to be on the cards for the UK. Despite a corresponding need for fiscal consolidation, the future for the US looks brighter. They have their own challenges but we believe emerging economies are likely to grow more rapidly than the developed world. More positive demographics and rapid urbanisation are likely to continue to support growth prospects relative to the developed world, although to be sustainable these economies will need to enact structural reforms to raise productivity. Somewhat counter-intuitively and contrary to popular opinion, there is not always a clear link...