In the latest edition of PGIM Quantitative Solutions’ Capital Market Assumptions (CMAs) the Multi-Asset team shares its quarterly update for 10-year expectations for widely-held asset classes. The team’s near-term developed and emerging market economic growth forecasts for the next 10 years have declined slightly, while inflation forecasts for the same horizon are similar to those from the previous quarter.
In the long term, the team expects real economic growth in developed economies to continue to moderate over the next decade, with inflation anticipated to decline over the next 10 years, relative to the elevated rates observed in 2021 and 2022. Long-run real economic growth and inflation in emerging markets, where younger populations and higher rates of return on capital are driving higher rates of nominal economic output compared to developed markets, are expected to advance at higher annualized rates.
More favorable valuations following the strong advance of Global Equities in Q4 2022 led to a modest decrease in the team’s long-term forecast for the asset class from 8.5% to 8.0%. The rapid rise in global interest rates in 2022 paused in the fourth quarter as a moderation in inflationary pressures resulted in markets pricing a less aggressive pace of policy tightening in 2023, leading to a forecast of 5.0% for Global Aggregate Bonds, a slight downward revision from the fourth quarter. The team’s long-term forecast for a balanced portfolio (60% Global Equities unhedged/40% Global Aggregate Bonds hedged) is therefore 7.2%, a decrease of 0.4% from the fourth quarter of 2022.
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