Economic Growth Projections

We estimate the S&P 500 will deliver an annualized nominal total return of 3% during the next 10 years (7th percentile since 1930) and roughly 1% on a real basis. Annualized nominal returns between -1% and +7% represents a range of likely outcomes around our baseline forecast and reflects the uncertainty inherent in forecasting the future. During the past decade the S&P 500 posted a 13% annualized total return (58th percentile). We model prospective long-term equity returns as a function of five variables: (1) starting absolute valuation, (2) stock market concentration, (3) economic contraction frequency, (4) corporate profitability, and (5) interest rates. Our forecast would be 4 pp greater than our baseline if we exclude a variable for market concentration that currently ranks near the highest level in 100 years. The 7% return would rank in the 22nd historical percentile. The intuition for why concentration matters for long-term returns relates to growth in addition to valuation. Our historical analyses show that it is extremely difficult for any firm to maintain high levels of sales growth and profit margins over sustained periods of time. The same issue plagues a highly concentrated index. Furthermore, the risk embedded in high concentration markets is not always reflected in valuation. We expect the return structure of the stock market will broaden in the future. Today's extremely high market concentration suggests that the S&P 500 equal-weight benchmark (SPW) is likely to outperform the cap-weighted aggregate index (SPX) during the next decade by an annualized 200 bp-800 bp. Our forecast suggests equities will face stiff competition from other assets during the next decade. Our 3% annualized equity return forecast combined with a current ten-year US Treasury yield of 4% and ten-year breakeven inflation of 2.2% suggests the S&P 500 has roughly a 72% probability of trailing bonds and a 33% likelihood of lagging inflation through 2034. Excluding concentration, the probabilities of underperforming would be 7% and 1%, respectively. Our S&P 500 baseline 10-year return forecast is lower than the estimates of other market participants. Buy- and sell-side projections of the long-term return of US stocks averages 6% (range of 4% to 7%).

Economic policymakers are grappling with elevated uncertainty, trade tensions, and effective tariff rates reaching levels not seen in a century. Our April 2025 World Economic Outlook shows a range of global growth projections. Our reference forecast, reflecting policies as of April 4, shows global growth declining to 2.8% in 2025 and 3% in 2026, down from 3.3% in the January Update. Despite the slowdown, global growth remains above recession levels.    The path forward demands clarity and urgent action. Countries should work constructively to promote a stable trade environment, manage difficult policy tradeoffs, rebuild fiscal space, and accelerate structural reforms to boost resilience and growth. 

Our latest World Economic Outlook projects global growth at 3.0% in 2026 and 3.4% in 2027. The outlook is shaped by two powerful opposing forces: the negative supply shock from the Middle East war, and demand-driven momentum from the global technology cycle thanks to rapid advances in AI. Many low-income countries face greater challenges. Activity is weakening in economies with limited participation in the technology value chain, while food insecurity could worsen if disruptions in energy and fertilizer markets persist. Many also face declining official development assistance and gaps in electricity supply, digital infrastructure, and skills needed to benefit from AI. The risks may be more balanced than earlier this year, but they are still mostly on the downside. Policymakers must restore price stability, rebuild fiscal buffers, use temporary and targeted support sparingly, advance reforms, and strengthen international cooperation. Read our latest insights for more: https://lnkd.in/gKVxDE9X.

Trade tensions & policy uncertainty come at a significant cost to global growth—one the world cannot afford.   Our new #GEP25 highlights the consequences of ongoing turmoil:    Global growth is projected to slow to 2.3% this year, its slowest pace since 2008 outside of global recessions.    Growth forecasts have been lowered in nearly 70% of economies across all regions and income groups.    By 2027, average global GDP growth for this decade is expected to be just 2.5%, the lowest rate since the 1960s.    Without sustained growth, developing countries won't be able to create jobs and reduce poverty.    Now, global growth could rebound faster than expected if major economies are able to mitigate trade tensions.    Read more: https://lnkd.in/ehtUDQ3B

Rates alone aren’t likely to head low enough to support current equity valuations, and will need support from a robust earnings outlook to keep stocks’ multiples afloat in the year ahead. U.S. large cap equity P/E is near levels last recorded in 2021, when short-term interest rates were near zero and 10-year Treasury yields were less than 2%. Based on current consensus expectations for the 2-year Treasury rate to hit 3.3% and the 10-year Treasury yield to be 4.1% in a year, as well as forecasts for earnings growth to rise about 14% per year for the next two years, our regression model for US large cap valuations suggests the S&P 500 is trading about 4 turns too rich. Valuations are notoriously difficult to model, and are very poor timing mechanisms for stocks to boot, so multiples are just one piece of the puzzle of markets to consider.  However, the recent divergence between the macro model and the market reality is worth exploring because this macro model struck an optimistic tone for equity markets for most of the last two decades. Prior to this past year, the only other extended periods in time in which yields and growth together implied lower than realized multiples was during and just after the turn of the century tech bubble and in the mid-cycle correction of 2015-16. Also, as valuations for the market cap weighted index overshot our fair valuation model estimate, the equal weighted index has continued to trade at a discount to implied fair valuation, suggesting the valuation excess is concentrated in high-priced large market cap stocks. On an equal-weighted basis, stocks trade at 18 times earnings, still a touch below what the bond market and earnings trends together imply is fair valuation. This valuation gap may suggest the Magnificent-7 has emerged as a risk to stocks, but it also hints that there remain valuation discounts hidden beneath the heavy weight of this dominant group. HB Wealth  Matthew Sanders

The global economy has demonstrated remarkable resilience. Inflation continues to moderate, with headline inflation returning to central bank targets in most economies. Global trade has also been recovering. Today, Chief Economist Álvaro Santos Pereira and I launched the OECD #EconomicOutlook. Global GDP growth is projected to strengthen slightly to 3.3% in 2025, and remain stable at this level through 2026. But geopolitical risks and uncertainties are high. The report underscores key policy priorities: ensuring a continued and lasting decline in inflation, establishing a credible fiscal path to secure debt sustainability, and implementing ambitious reforms to drive sustainable and inclusive growth over the medium term. In particular, in this Economic Outlook, our special chapter focuses on tackling pervasive labour shortages. 🔗 https://oe.cd/5Q1

In this week's blog we discuss: - Treasury Yields & Market Dynamics: The 10-year Treasury yield hit a 14-month high but retreated with positive inflation data, continuing to test market resilience as previous highs triggered notable pullbacks in the S&P 500 #stocks. - Historical Insights & Fed Policy: Historical patterns suggest bond yields peak at the end of Fed rate cycles, echoing past soft landings like the mid-1990s, with current trends indicating a similar path without reaching previous peak levels. - Inflation & Economic Indicators: Encouraging signs are emerging, with housing costs and wage growth slowing, aligning with the Fed's #inflation targets, despite persistent uncertainties in services inflation and potential monetary policies. - Strong Economic Fundamentals: The robust U.S. economy with solid job growth and consumer spending is projected to benefit from potential pro-growth policies, although concerns about stimulative fiscal measures and tariffs add complexity to inflation forecasts. - Earnings Season & Market Outlook: Impressive earnings from the banking sector signal strong macroeconomic health, with S&P 500 #earnings expected to grow significantly. Upcoming reports from major corporations like Netflix and key economic indicators will shape market sentiment and valuation trends.

After 5 months of non-stop partying in the S&P 500, experiencing a correction has required a momentary break in the disinflation process, a jump of 65 bps from the 10Y Treasury yield lows plus the confirmation that it will still be a while before we see a rate cut. That time has finally come, and the SPX could drop to around 5,000 or even a bit lower, thus falling by 5% from its highs. The US Treasury yield curve has been flattening over the last few months because its long-end has been shifting upwards in a process known as ‘bear steepener’. The 10Y yield has increased till 4.50, 11 bps since last Friday, and I expect it to continue climbing to test last October’s highs (around 5%). In the meantime, US debt continues going up and it is already more than half a trillion above where it was just 3 months ago. Investors begin to understand that we are still in a complex scenario where several threats jeopardize the intended soft landing. The world continues moving further away from the peaceful and globalized scenario where unhindered free trade took place over the last decades. The prospect of a new Trump administration does not help in that regard. All of that, together with recession-like fiscal deficits, does not bode well for going back to a low inflation world. Such an outlook clearly explains why gold price is and will continue increasing in the foreseeable future, and at the same time we are unlikely to see interest rates dropping back to zero during many years. #theFed #higherforlonger #inflation    

Humanoid robotics could reach USD 750 billion by 2035. By 2050, projections point to an industry comparable in size to automotive today. What is driving adoption: Europe's working-age population is set to decline by 18 percent by 2050, China's by 24 percent. At projected operating costs of around two dollars an hour per humanoid robot, the economics shift fast once the technology matures. For European automotive suppliers, the opportunity is concrete. The largest component segments, actuators, energy systems, structural components, among others, match capabilities our industry already has. The component market alone is projected at over USD 300 billion by 2035. China produced around 15,000 humanoid units in 2025. EMEA and North America around 600. Two separate ecosystems are forming, and supply chains on both sides are being defined right now. European automotive players with deep expertise in exactly these components have a window to shape the Western supply base. That window will not stay open indefinitely.   Defense is rightly getting attention as overcapacities build in automotive. What I would add to that conversation: the component overlap between automotive and humanoid robotics is just as high, and the market trajectory points to an additional opportunity that deserves the same strategic attention. If you want to go deeper, Thomas Kirschstein, Shuai Shi, Hugo Carreira, Charlie Pope, Jonas Zinn, Jiachen Song and colleagues have done strong work on this. #HumanoidRobots #Automotive Roland Berger

India's Economic Outlook for FY25 (recently released) GDP Growth Forecast   - Expected real GDP growth: 6.4% (slowest since the pandemic years).     - Nominal GDP growth: 9.7%, slightly higher than FY24's 9.6%.    - Finance Ministry's projection: 6.5%; RBI's projection: 6.6%. Factors Supporting Growth   - Rural consumption, government investment, strong services exports.    - Robust performance in agriculture, construction, and real estate sectors.  Challenges to Growth     - Persistent inflation, weak urban consumption, sluggish private investments.     - Slowdown in manufacturing activity.  Government Spending & Investment     - Government final consumption expenditure (GFCE) expected to rise 4.1% in FY25 (up from 2.5% in FY24).     - Gross fixed capital formation (GFCF), a proxy for investments, to grow 6.4%, down from 9% in FY24.  Sectoral Highlights     - Manufacturing: Growth expected to slow to 5.3% (from 9.9% in FY24).     - Construction: Growth forecast at 8.6%, down from 9.9%.    - Agriculture: Expected to grow 3.8%, a marked improvement from 1.4% in FY24 due to favourable rainfall.  Private Consumption     - Private final consumption expenditure (PFCE) expected to rise 7.3%, higher than 4% in FY24.     - Urban consumption faces challenges from high inflation and slowing credit growth.  Trade Deficit     - Expected to decline to ₹1.09 trillion in FY25 (from ₹3.99 trillion in FY24).     - Net exports remain a drag on growth due to consistent negative performance.  Quarterly Trends     - Slow growth in Q2 FY25 (5.4%) attributed to reduced government spending during elections and weak urban markets.     - Economy expected to rebound in the second half of the fiscal year.  Economic Size     - Real GDP projected at ₹184.88 trillion in FY25 (up from ₹173.82 trillion in FY24).  This summary highlights the mixed outlook for India’s economy in FY25.