Aviva Investors is predicting global growth of around 2.75 per cent in the new year, down from 3.25 per cent in 2023, while anticipating that economies should continue to avoid recession.
According to the asset manager’s latest quarterly house view, rising real incomes should support household consumption, assisting in mitigating the impact of positive real interest rates.
“Overall, private sector balance sheets are not particularly stretched in the major economies, and therefore the potential for a deleveraging-driven deep recession remains relatively low,” Aviva noted.
Growth in the US is predicted to slow to below trend, though Aviva’s investment team’s projection remains stronger than consensus.
The UK and Eurozone, too, should see sluggish growth in 2024, as will China and Japan, as the pass-through of higher policy rates puts pressure on corporate borrowing and mortgages.
Looking at interest rates globally, it expects rate cuts across major central banks, starting with the European Central Bank (ECB).
Aviva noted: “The scope to shift from a tightening cycle in 2022/23 to an easing one in 2024 is only possible given the combination of the decline in inflation and the softening in the labour market.
“In terms of the timeline, the ECB is likely to be the first to cut rates, possibly as soon as early Q2. The Fed is expected to follow soon after, while the Bank of England could start cutting in Q3. The timing and extent of rate cuts will be dependent on how the risks evolve.”
The asset manager’s chief economist and head of investment strategy, Michael Grady, highlights its approach to a “new normal” once interest rates stabilise.
“We expect a ‘soft-landing’ disinflation that should only require a neutral policy stance, rather than an accommodative one,” Mr Grady said.
“But even delivering that through 2024 would require 200–300 bps of rate cuts depending on the economy. We expect that the long-term interest rate environment will be very different to the post-GFC years, with neutral nominal rates around 2 to 3 per cent.”
Looking at asset allocation in 2024, the loosening of monetary policy should prove to be a supportive environment for risk assets, Aviva observed.
“Indeed, Aviva Investors prefers to have an overweight position in equities, while remaining conscious of the downside risks to nominal demand growth in 2024. The team expect solid, if unspectacular, earnings to be the key for equity markets in 2024,” it said.
Additionally, for the first time in three years, it prefers to be overweight, with the view that the rate hiking cycle has come to an end.
“In terms of fixed income, the team prefer to be overweight UK and European government bonds, where the risks are greatest to the downside, while maintaining an underweight in Japanese government bonds as policy is normalised there.
“The team also prefer to be broadly neutral on corporate bonds, with the risk-reward somewhat better in high-yield than investment-grade given current spread levels and the stage of the cycle.”
