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There's A 60% Chance The Economy Keeps Firing, And A 20% Chance Everything Goes To Hell

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There's A 60% Chance The Economy Keeps Firing, And A 20% Chance Everything Goes To Hell

BMO Global Asset Management just released its 2016-2021 Global Investment Five-Year Outlook. According to the new report, the most likely global economic scenario is moderately bullish growth.

BMO calls its base-case scenario “firing on more than one cylinder.” The firm sees a 60 percent chance of this moderate global growth outlook.

“In this scenario, while the U.S. continues to lead the expansion –relative to the rest of the world—a more balanced recovery is in the cards as Europe and Japan now show signs of improvement and opportunity,” the report reads.

In addition to the base-case scenario, BMO sees a 20 percent chance of upside surprise and a 20 percent chance of downside surprise.

Related Link: EIU: Trump Presidency Would Be A Global Threat, Same Risk Level To Economy As Jihadi Terrorism

In the downside scenario, BMO warns that a hard landing in China, slumping global growth and a failure of Japan’s reform efforts could all potentially be in play. In addition, the impact of Europe’s QE could become exhausted and political instability could wreak havoc on the oil market.

In this scenario, BMO believes that investors will rush to U.S. dollar assets, large cap U.S. equities and long-dated U.S. treasuries.

So far this year, the PowerShares DB US Dollar Index Bullish (NYSE: UUP) is down 3.6 percent, the SPDR Lehman Long Term Treasury (ETF) (NYSE: TLO) is up 5.9 percent and the SPDR S&P 500 ETF Trust (NYSE: SPY) is up 0.3 percent.

Disclosure: the author holds no position in the stocks mentioned.

 

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