Panel, Conference Presentation
The Global Economy: Hoping for Momentum amid Tepid Times
Milken InstituteSkip Reimer, Jim McCoggan, Terry Duffy, Alex Friedman, Joshua Harris, Alan Howard, Min Zhu
- U.S. economic growth is forecast to reach 3% for the current year and next, with expectations of two to five years of moderate growth and no near-term recession, though U.S. GDP levels are projected to remain only 3-4% higher than 2007 levels over a five-year horizon.
- Earnings growth in the U.S. is anticipated to be 6% to 8%, heavily dependent on capital expenditure increases, while the economy is expected to hit full capacity by late 2015 or early 2016, triggering inflationary wage pressures.
- Interest rates are predicted to normalize into a 2% to 3% range, with the 10-year Treasury expected to reach 4.40% five years from now and short-term rates potentially reaching 2.25% by 2016, rising further to 5-5.5% as full employment approaches.
- The Federal Reserve is expected to act first in normalizing policy, with any hint of inflation triggering a significant pullback and balance sheet contraction, while the ECB and BOJ are anticipated to remain on an easing side for the foreseeable future.
- Emerging market growth has stabilized at approximately 4.5% globally, but faces risks from the exit of roughly $407 billion to $470 billion in "fast money" or "extra" capital dependent on global quantitative easing, which could lead to dramatic deleveraging and banking stress.
- U.S. equity markets are currently flat year-to-date due to geopolitical risks regarding Russia-Ukraine, with specific predictions that a potential drop from global indices or a Cold War scenario could cause significant financial issues and market downturns.
- Japan is projected to face structural challenges requiring corporate tax cuts to 25-28% and potential further easing if inflation targets are missed, though there is a risk of a debt market run if inflation is stimulated without accompanying growth.
- Fiscal consolidation is deemed necessary for the U.S. in the medium and long term due to large unfunded liabilities, while Europe requires both a banking union and quantitative easing to ensure monetary policy transmission to the real economy.
- Commodity price baselines are forecast to trend downward over the next few years with increased volatility driven by geopolitical risks, while Europe's banking sector deleveraging is expected to create valuation arbitrage opportunities in consumer loans and distressed assets.
- Apollo Global Management plans to accelerate portfolio growth from "one and change" to high twos or 3% by the second quarter but will refrain from lending to emerging markets until credit risk in regions lacking defined legal systems is better understood.