A scarcity of natural resources, created in part by the growing demand from developing countries, and continuing inflation could dramatically alter the fundamental structure of the world economy, says the 2008 Equity Gilt Study produced by Barclays Capital, the investment banking division of Barclays Bank PLC, based in London.
The 2008 Equity Gilt Study looks at the macro-economic impact of world changes and analyzes returns for equities, government bonds and cash in the United States and the United Kingdom. The study predicts that the demand being put on resources from developing countries and the resulting scarcities will create significant changes in the global economy, and that decreasing volatility of the marketplace will no longer be tied to increasing growth of the economy.
"These changes have profound implications for investors as consumption and investment patterns adjust to the new reality," says Tim Bond, Barclays Capital head of asset allocation. "We recommend long-term investors plan and supplement hedging strategies to protect the value of their portfolios from the damaging effects of inflation and heightened volatility."
The report says increased demand for resources creates growing inflationary pressures that forces monetary policy-makers to implement tougher measures against inflation, which will make it more difficult for them to smooth out boom-and-bust cycles than in the past. Furthermore, the study gloomily predicts that "the current credit crunch represents the death throes of a rather inefficient economic arrangement that was only sustainable under disinflationary conditions."