Current Events

Dispersion in terms of growth depending on the geographical regions, Divergences in terms of monetary policies, and Differentiation in terms of exposure to the various asset classes will be the keywords for this year 2015 “in 3D”.

See executive summary below.

The macroeconomic environment in 2015

The macroeconomic environment in 2015 may look very similar to 2014, with an acceleration of growth in the first half and then a slowdown in the second.

• In 2014, the global recovery stumbled over a series of unforeseen events (deterioration of confidence because of geopolitical shocks, contraction of demand in Japan) but the conditions for accelerated growth in the short term remain intact (sharp fall in long-term interest rates and extremely accommodating monetary conditions, historic 33 percent fall in oil prices in six months).
• The macroeconomic environment will also remain characterized by rapid growth in global liquidity and low inflation in developed countries.
• Nevertheless, the risks to our growth scenario are more balanced than three months ago and the fall in the oil price is a historic stimulus for most of the world’s economies.

Large growth gaps between geographic regions

• The US recovery continues (deleveraging completed, existence of competitive advantages linked to energy production, upturn in corporate investment and improvement in employment). 2015 will once again be the year of the dollar, even though we do not expect it to appreciate as much as in 2014. The dollar will be underpinned by both the Fed and monetary policy divergences between the United States and a number of G10 banks that will continue to weaken their currencies. In the upcoming months, the dollar will increasingly become more of an investment currency than a borrowing currency.
• The outlook for growth is brighter in the euro zone. Spain, Portugal and Greece will provide 25% of euro-zone growth while the countries where reforms are lagging behind (Italy, France) will still dampen EMU growth. However, the foundations of growth remain fragile: increase of public debt in 2015, Greek crisis, while major and difficult elections are looming on the horizon (Greece and Spain), real deflation risk and increase in the long-term unemployment rate.
• Emerging countries will move from growth driver to a risk for the global economy (geopolitical shock in Russia, financial crisis in Argentina, etc.).
• As for Japan, it will find it difficult to pull out of the recession, with a GDP plummeting by 7.3% in the 2^nd quarter of 2014 and by 1.6% in the 3^rd quarter and households expecting zero inflation at the end of the 1^st quarter of 2015.

The impact of this environment on asset allocation

• The performances of assets are likely to be markedly more heterogeneous with more volatility, more dispersion between returns and more discrimination between assets.
• Equities will continue to be attractive. US equities will benefit from a positive growth environment while European equities could receive a certain support from the ECB, given the likely extension of asset purchases to sovereign bonds.
• As for sovereign bonds, the euro zone can be expected to outperform because of the divergence of monetary policies.
• For credit, the outlook seems more differentiated (risk of a rise in default rates in Europe specifically).
• Commodities are the assets for which the outlook is gloomiest. The imbalance between supply (significant surplus) and demand will continue to weigh on prices.
• Note also a currency risk with respect to emerging currencies that will have to be monitored.