Technology has laid the foundation for continued long-term economic growth, but it will also fuel economic and political populism, according to Wilmington Trust.

The company's annual capital markets forecast stated that although productivity growth has been slow in recent years, productivity is expected to move high enough to sustain economic growth over the next 12 to 18 months. Yet the same factors behind the increased productivity—namely robotics, artificial intelligence and other technologies—will eliminate jobs and encourage populist policies.

"The interplay of productivity and populism is creating a perfect storm of uncertainty in the market," said Tony Roth, chief investment officer at Wilmington Trust Investment Advisors, in a prepared statement. "Ironically, higher productivity has contributed to populism, which in turn can result in policies that are damaging to economic growth."

The trust company, however, has increased risk in its portfolios and is overweight in equities, partially because of the reduction in trade and recession risks. Wilmington has also added international equities in developed nations to its portfolio because it feels the sector will benefit from reaccelerated growth and attractive valuations.

"The effects of productivity are absolutely critical for impending monetary policy by the Fed and other central banks," said Luke Tilley, Wilmington Trust's chief economist, in a statement. "At this time, we believe that investors will benefit over the next nine to 12 months from a slight overweight to risk in portfolios, but we also recommend including adequate exposure to fixed income and hedge funds for protection should volatility increase."

Wilmington Trust said it is forecasting higher productivity—despite U.S. productivity growth being at its lowest level since the end of World War II. The nation's productivity growth has declined from 2.6% in the 2002 to 2007 time frame to 1.4% since 2009, the report noted.

The company argued in its report, however, that the data belies the gradual impact that technology is having on the economy. Wilmington projects, for example, that autonomous driving technology will have a material impact on the economy within 10 years.

"Evidence of increased economic output from investments in new technology has taken longer to materialize, but we should soon start to see technology-driven productivity gains, which will support future growth," the report said.

This outlook is among the reasons Wilmington has increased its holdings in the tech sector.

"A bottoming of global economic activity and receding trade tensions improves the outlook for the most cyclical stocks within the tech sector, including semiconductors," said Meghan Shue, Wilmington's senior investment strategist, in a statement.

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