Global economic growth will be so slow over the next 35 years that policymakers will struggle to meet the significant economic, social and political challenges that results, Deutsche Bank said.
And unlike the past 35 years, inflation and bond yields will rise over the next three decades, said the report, which was cited by bond traders on Friday as a reason for a sell-off in fixed income markets that pushed bond yields up to levels not seen for months. Stock markets around the world also fell, Reuters reported.
The detailed annual study from one of the world’s biggest banks argued that all the conditions underlying the previous 35 years of rising global growth and prosperity are fading.
“We’re about to see a reshaping of the world order that has dictated economics, politics, policy and asset prices from around 1980 to the present day,” Deutsche’s report said.
“Given that this current cycle has lasted around 35 years, it’s possible that the next cycle ... will also last many decades. Extrapolation of the last 35 years could be the most dangerous mistake made by investors, politicians and central bankers,” it said.
It said asset valuations in major developed countries had never been higher, for reasons unique to the 1980-present day period.
The 10-year US Treasury yield, effectively the global benchmark interest rate, leapt to 1.67%, its highest since Britain voted on June 23 to leave the European Union.
Germany’s 10-year yield rose sharply too, popping above zero for the first time since the Brexit vote. Wall Street slid more than 1%, also the biggest decline since June.
Concerns that the Bank of Japan is nearing the limit of its bond-buying program and may reduce its purchases of long-dated Japanese government debt have sent the 10-year Japanese government bond yield back toward zero, according to Tradeweb.
According to Deutsche, common themes over the next 35 years will include: lower real growth, higher inflation, less international trade, more controlled migration, lower corporate profits as a share of gross domestic product and negative real returns in bonds.
