AXA Investment Managers 2016 Economic Outlook

Authors
Research and Investment strategy team - AXA IM
Insight
PDF 1.5MB
18 December 2015

Key points

  • Global growth is set to remain subdued at 3.1% in 2016 and 3.0% in 2017. Modest deceleration is likely in the US and China. In the euro area, we expect little change in pace. Japan is one of the few developed economies we expect to post faster growth.

  • This sluggish growth reflects a global demand gap, mostly due to insufficient investment, and contributing to explain low commodity prices and subdued inflation. The supply/demand imbalance will persist in 2016.

  • Monetary policy divergences will widen in 2016, with the Fed and BoE incrementally tightening while ECB, BoJ and PBoC will pursue easier policies. This divergence will strengthen the US$ against all currencies but may also increase volatility throughout 2016.

  • Overall, the outlook for investment returns is unimpressive. Rising yields, mainly in the US, call for caution on fixed income. Within this asset class we keep faith in euro peripheral spreads.

  • In credit we confirm a preference for high yield, at least in the short run. Investment grade positions should be trimmed to a slight underweight.

  • We view today's stock market valuation as slightly expensive with little margin for multiple expansion. Market returns will have to rely on earnings growth, which we expect around 5%. Within equities, we still believe in the euro area and Japan because of the improving economic backdrop and benign unit labour cost growth. The US market remains our main underweight.