Something to look forward to over the next seven years: the continuation of the U.S. as dominant global economic powerhouse, or so says Wilmington Trust.
Wilmington Trust’s Investment Strategy Team released its annual seven-year capital markets forecast report titled “Brave New World, Reserved Expectations” during a conference call with press last week.
In order to look forward, Wilmington Trust first looked back at the past seven years.
“Starting with the bursting of the housing bubble in 2007, followed by the collapse of some financial and mortgage giants, the U.S. plunged headlong into a recession in 2008, characterized by a dangerous lack of liquidity and credit,” the report states. “With a federal funds rate at or close to zero, the Federal Reserve went a step further into uncharted territory with its exceptionally loose monetary policy program known as QE, or quantitative easing — three phases of expanding its balance sheet by adding new assets and liabilities that would successfully keep the economy from entering a deflationary spiral.”
Fast forward to today, and the U.S. is a global economic leader. And Wilmington Trust expects this to continue.
“The U.S. has re-emerged as the dominant global economic powerhouse, and we believe that will continue to be the case — and increasingly be the case at least for the first half of our forecast time horizon,” said Tony Roth, Wilmington Trust’s chief investment officer, during a conference call on Wednesday.
In Wilmington Trust’s seven-year forecast, the firm envisions a strengthening U.S. economy — which the firm predicts will be marked by both steady, positive developments as well as persistent challenges, resulting in a “prolonged, subdued recovery.”
As Roth said during the conference call, “We’re seeing positive development overall in economic growth, employment [and the] U.S. dollar — which surely does act as, what I would characterize as, a minor headwind relative to the underlying domestic economic strength that we’re seeing.”
Wilmington Trust expects the U.S. currency to continue to appreciate in “real (post-inflation) terms” against currencies of developed market counterparts for the foreseeable future. International currencies like the euro and yen, which have undergone central bank policies in Europe and Japan, are likely to reduce further in value, the report states.
A strong dollar means increased capital flows into the U.S., which Wilmington Trust says bodes well for domestic stock prices. A strong dollar also means higher prices to foreign buyers of U.S. goods and services.