Fund managers have turned significantly more cautious about the prospects for world growth and investment returns, according to a global survey of investment managers conducted by professional services firm Towers Watson.
According to the study, real GDP growth expectations for 2012 range from 0% in the Euro zone (1.8% in 2011) to 8.0% in China (8.9%) followed by 3.0% in Australia (3.2%), 2.0% in the US (3.0%), 1.0% in the UK (2.0%) and 1.5% in Japan (1.5%). Managers’ 10-year GDP growth forecasts broadly match their one-year view and are below historical trends.
The survey shows managers expect unemployment to remain a tough challenge for some Western economies, especially for the Euro zone countries implementing fiscal austerity measures, while they expect a soft landing in China. Expansionary monetary policies are expected to hold in 2012, with exceptionally low interest rates in some Western economies, but to gradually tighten in years ahead. Inflation is viewed as a moderate risk, but with a wide range of possible outcomes, tending to the upside. Managers have little concern about the fiscal situations in Canada, Australia and China.
Turning to five-year views on bonds, most managers (63%) still hold overall bullish views on emerging market debt, although down from 76% in 2010 and most (77%) remain bearish on the prospects for nominal government bonds. Most managers hold neutral or negative views on the prospects for inflation-linked government bonds (79%), while high-yield bonds are viewed more positively (59% are bullish).
Other findings from the survey include:
– In 2012 managers expect unemployment to be higher than in the recent past in the U.K. (8.5%) and Euro zone (10.6%) while they are expecting a mild improvement in the U.S. (8.5%)
– They are expecting improved unemployment figures in most markets, excluding China and Japan, during the next ten years, although some, mainly Western countries will stay fairly high by historical averages: Euro zone (9.0%), U.K. (7.0%), U.S. (7%) and Canada (6.5%).
– The managers’ consensus is that crude oil is expected to reach US$100 a barrel this year (they expected US$93 in 2011 and US$80 in 2010) and US$120 a barrel in the next ten years (up from US$103 last year).