BMO Global Asset Management has developed a multi-year, multi-scenario based profile of the global investment landscape. BMO’s investment team has identified three distinct macroeconomic scenarios with potential global implications.

In the first scenario, “The West Rides Again,” growth in the U.S. accelerates from its current slow pace and reaches “normal” levels. Meanwhile, Europe grows slowly as it emerges from the recent recession, while continuing to wrestle with internal challenges.

In the second scenario, “Synchronized Growth,” Europe and Japan strengthen along with the U.S., following the tendency of expansive fiscal and monetary policies to produce positive results.
In the third scenario, “Broken China,” rapid deceleration in Chinese growth is the catalyst of a renewed recession in Europe and Japan, and a near-recession in the United States.

The probabilities for the three scenarios are 60%, 30%, and 10%, respectively.

The West Rides Again is the most likely scenario because the structural and demographic problems of the United States are much less severe than those of Europe, China and Japan.

“Our consensus is that Japan hangs on the cusp over these next three to four years,” said Sandy Lincoln, chief market strategist at BMO Global Asset Management. “Maybe they get a little inflation and a little growth, but it’s nothing as robust as they and the world hope. It’s a lot better than it was 20 years ago; it’s been a difficult road for Japan. So we get a little relief in Japan, but not a lot.”

Population growth rates have slowed everywhere, but U.S. demographic prospects are more favorable than those of the rest of the developed world, according to a report by BMO Global Asset Management.

“Japan and Europe face weak and anemic growth,” said Tony Cousins, CEO and chief investment officer at Pyrford International, an asset management subsidiary of BMO. “Some countries have had declining populations and workforces. Demographics do matter, and are inexorable. Debt levels in the private and public sectors is mainly at expected levels.”

Population in the U.S. is at least moving in a positive direction: while growth is slow, at 0.7% a year, there is no comparison with southern Europe or Japan, where populations are actually shrinking, and where government debt held by the public averages 83% in the European Union and 200% in Japan, compared with only 73% in the United States.