Insight Investment

“Negative real rates, repeated fiscal expansion, and monetised deficits have stabilised economies but at the cost of rising fragilities.”

Summary

We are entering a new world. The pillars that once underpinned the global economic order – globalisation, favourable demographics and manageable debt – have steadily eroded. Deglobalisation has accelerated sharply, adverse demographic trends continue to weigh on growth, and debt burdens across advanced economies have reached levels that increasingly constrain policy choices. These forces are not cyclical. They are structural, persistent, and reshaping the economic and geopolitical landscape in profound ways.

What is striking, however, is that despite this unusually fluid backdrop, marked by geopolitical conflict, policy uncertainty and repeated economic shocks, financial markets have remained resilient. Risk assets have performed strongly, long‑term government bond yields have remained relatively stable, and volatility has often surprised on the downside. Yet this surface calm masks growing fragilities. Equity market gains have been highly concentrated, central bank policy easing has failed to pull long‑dated yields lower, and nominal asset returns increasingly overstate real wealth creation, particularly once viewed through the lens of gold.

At the same time, the distributional consequences of this environment are becoming harder to ignore. Wealth has become ever more concentrated, leaving large parts of society disconnected from the gains delivered by financial markets. The resulting frustration is driving political and social change, contributing to the rise of populism, economic nationalism, and a broader questioning of the existing economic model. Against this backdrop, monetary and fiscal policy have been pushed to their limits, relying on negative real rates, repeated fiscal expansion and, increasingly, monetised deficits to stabilise economies, at the cost of rising long‑term risks.

We believe this places the global economy in an interregnum: a period between regimes where the old framework no longer functions as intended, but the new one has yet to emerge. The path forward is uncertain, with multiple outcomes possible – ranging from renewed inflation or recession to a more constructive scenario in which genuine productivity gains reshape the outlook. In this context, innovation matters. Advances in artificial intelligence, and the unprecedented scale of investment now underway, offer a credible upside scenario, one that could lift productivity, support growth and ease fiscal constraints. The challenge for investors is to recognise this new terrain, understand the enduring lessons of the past, and position for a much wider range of future outcomes.