Below is a summarized excerpt from our 2020 Sherwood Financial Partners Investor Conference
What are our short-term economic concerns?
In the short-term, trade rises to the top. U.S. trade policy has taken a much more aggressive approach over the last several years with threats and enactments of tariffs. While the current administration hopes that this will improve the growth of the U.S. economy over the long-term, it has slowed international trade and increased supply costs in the short-term.
This uncertainty has been coupled with the recent outbreak of COVID-19 and has further complicated global trade. Fears have arisen about a potential global pandemic and quarantines have disrupted supply chains. As countries grapple with how to best contain the disease, we anticipate a short-term dip in economic growth followed by a recovery in demand once the disease abates.
What are our long-term economic concerns?
As we look out over the longer term, there are a couple of key trends that we are keeping an eye on. One of those is demographics, particularly in the developed world. There are two key components to GDP growth: one is increasing productivity and the second is an increase in the workforce. The developed world has seen a steady decline in birthrates and family sizes. This has led to smaller and smaller gains over time in the size of our workforce especially when coupled with weaker immigration under the current administration. We have also seen slower increases in productivity. One of the main theories is that as our economy shifts more into services instead of the production of goods, gains in productivity will be harder to come by.
Our other main long-term concern is continued lower interest rates. While there are many factors for the lower rates, we are primarily concerned with their implications for investment returns. Lower rates will more than likely be correlated with lower returns over the long-term time horizon.
What are our growth expectations?
We anticipate a continued trend of tepid growth to stretch through 2020. While there are some risks of dipping into a recession, an accommodative U.S. Federal Reserve reduces the risk in the short-term. In the developed world, we anticipate growth to hover around the 1% mark. In the emerging markets, we expect growth to be closer to the 4-5% range with the bulk of the growth coming from China and India.
