Divining the decade

The relentless churn of today’s 24/7 news cycle makes it easier than ever for investors to miss the wood for the trees. That’s why, from a personal perspective, one of the most rewarding parts of my team’s work is our annual review of Rathbones’ 10-year projections for the world’s major economies and a range of markets.

This process – which informs the long-term mix of assets in our portfolios – is always a welcome opportunity to step back from the headlines. It’s designed to ensure we’re focused on the structural forces shaping the investment landscape.

This year, two major themes stood out as we refreshed our forecasts. Both have important implications for investors.

First, we think the global economy is in an era of structurally higher and more volatile inflation, compared with the 2010s. The consistently subdued inflation of that period doesn’t appear likely to return soon – it was a historical anomaly. 
 

Ups and downs in inflation

Investors will, it seems, need to get used to ups and downs in inflation once more, just as before the turn of the century. The past few years have seen overlapping, interconnected changes across three spheres – political, geopolitical and environmental – that are likely to contribute to this. We’ve factored these changes into our forecasts.

One inflationary pressure is that in domestic politics, the one-time electoral support for tight fiscal policy has evaporated. Since the pandemic, structurally larger fiscal deficits have become the norm. Austerity no longer even makes it onto the ballot paper. In the US, 2025 saw the passage of tax cuts worth trillions of dollars over the next decade via US President Donald Trump’s One Big Beautiful Bill Act. Germany rewrote its once-sacrosanct fiscal rules to allow far more spending on defence and infrastructure, while the EU announced a €150bn joint-borrowing scheme for similar purposes.

Our inflation forecasts factor in differences in countries’ fiscal outlooks. In geopolitics, multilateralism has weakened and ‘great power’ competition has intensified, adding to inflation risk. The US had been retreating from its role as the lynchpin of global free trade since the late 2010s, even before Trump’s much stronger ‘protectionism’ – the name for a policy of imposing trade barriers. Higher trade barriers increase inflation risk for several reasons. One is that they make it harder for firms to compete on price across borders. We account for this in our inflation forecasts by measuring the extent to which each country consumes products made outside its own geopolitical bloc.