The big picture

Navigating disinflation

The global economy looks set to slow in 2024, as fiscal policy starts to drag on growth and higher interest rates weigh on household and business activity, with excess savings built up during the pandemic largely spent. We expect global growth of around 2.75 per cent in 2024, down from around 3.25 per cent this year.

However, once again, recessions ought to be avoided as rising real incomes support household consumption, outweighing the impact of higher mortgage costs. Private-sector balance sheets are not particularly stretched in major economies. As such, the danger of a deleveraging-driven deep recession remains low.

Growth is likely to slow to below trend in the United States – although our projection is somewhat better than current market expectations – with the Chinese and Japanese economies expected to weaken as well. As in 2023, growth is likely to be sluggish in both the euro zone and UK.

Headline rates of inflation have fallen significantly over the course of 2023, as the impact of higher energy and food prices has subsided, and globally traded goods supply chains have normalised.

With growth expected to be subdued, this decline in inflation, combined with signs of softer labour markets, should open the door for major central banks to start cutting interest rates. The European Central Bank is likely to be the first to move, possibly as soon as April, with the US Federal Reserve unlikely to be far behind. As for the Bank of England, it could follow in the third quarter.

While there should be scope for interest rates to decline appreciably from current levels, they are unlikely to fall nearly as low as in the years that followed the global financial crisis. We see them hovering between two and three per cent rather than approaching zero.

Figure 1: Aviva Investors growth projections

Source: Aviva Investors Macrobond, as at 31 December 2023.

What this means for asset allocation


As we have highlighted previously, while yields have been a catalyst for recent gyrations in equity prices, company profits will likely be the key driver of returns in 2024. Valuations have little room to go higher, especially in the US market, where in the last 20 years shares have only appeared more richly valued on one previous occasion.

The US experienced declining profits earlier than other countries at the start of 2022 and appears to have come out on the other side with earnings growth having resumed in recent months. US economic data, which has remained fairly buoyant, provides reason for optimism.

Assuming interest rates have peaked and earnings troughed, there should be scope for equities to continue the rally seen in recent months.

Figure 2: Asset allocation - Equities

Figure 2. Asset allocation - Equities

Source: Aviva Investors, as at 31 December 2023.

Government bonds

Inflation appears to have proved less hard to eradicate than many feared, thanks to tighter monetary policy and the normalisation of supply chains and labour markets. The prospect of easier monetary conditions has already led to a sharp decline in the yields offered by government bonds from this autumn’s peak.

While that limits upside potential for investors in some markets, most notably the US, other markets such as the UK and Europe look to offer more value. While bond prices have recovered strongly in these markets as well in recent weeks, the challenging economic environment, coupled with the prospect of a further sharp fall in inflation, suggests this recovery could have further to go.

A comparatively healthier economic backdrop in the US means the risks and rewards of investing in US Treasuries are far more finely balanced given the extent to which the market is pricing in rate cuts in 2024.

As for Japan, the prospect of a long-awaited normalisation of monetary policy by the Bank of Japan in the face of stubbornly high inflation, following years of negative interest rates, leads us to be heavily underweight.

Figure 3: Asset allocation - Government bonds

Figure 3. Asset allocation - Government bonds

Source: Aviva Investors, as at 31 December 2023.


We are neutral on credit markets, with the yield differential relative to more highly rated government debt broadly where we would expect it to be given the economic backdrop. Within credit markets, we favour higher-yielding debt issued by less creditworthy borrowers.

The result of the US Presidential election in 2024 will be worth keeping a close eye on as it could have a material impact on the US bond market. On the one hand, tax cuts and increased protectionism could be positive for US companies. Then again, any signs of political interference with the Federal Reserve, or increased fiscal profligacy, has the potential to damage bonds.

Figure 4: Asset allocation - Credit

Figure 4. Asset allocation - Credit

Source: Aviva Investors, as at 31 December 2023.

Key investment themes

1.  Rate cuts on the horizon

The most aggressive increase in interest rates in more than four decades helped quell inflation in 2023 and has opened the door to rate cuts. With headline rates in major economies still uncomfortably high, the inflation battle has not yet been completely won. However, recent data suggests inflation may fall back to central bank targets quicker than previously anticipated.

That would enable central banks to start cutting rates. Where economic growth is already weak – as in the euro zone and UK – a return to two per cent inflation could open the door to earlier and deeper rate cuts. In the United States, where inflation has fallen back despite growth being above potential, we expect rate cuts to be more limited in 2024.

Should recessions materialise, rates might be cut much more aggressively. The risk is that central banks fall behind the curve in cutting rates, at least initially. In an alternative risk scenario, if inflation stays stubbornly high, this could prevent or delay rate cuts.


Figure 5: Market pricing rate cuts

Source: Aviva Investors, Macrobond as at 31 December 2023.

2. Geopolitical tension and financial fragmentation

The communique that followed the annual G7 meetings in May 2023 was significant for its inclusion of the following phrase: “[to] coordinate our approach to economic resilience and economic security that is based on diversifying and deepening partnerships and de-risking, not de-coupling.”

De-risking, rather than de-coupling, is a diplomatic way of saying there is no desire to eliminate all trade with less-trustworthy partners. Instead, the goal is to reduce or remove the reliance on them for critical minerals, the manufacture of essential technology and healthcare goods. At the same time, there is a wish to limit some countries’ ability to threaten national security objectives by developing certain technologies.


Figure 6: Explosion in harmful trade interventions

Number of trade restrictions imposed annually worldwide

Source: Global Trade Alert as at 31 December 2023.

3. Intervention and industrial policy

Governments have been turning to various forms of intervention and industrial policies as they increasingly focus on long-term national and economic security objectives and combatting climate change. While such policies are not particularly groundbreaking, it is their scale and scope that makes them extraordinary.

From China’s “dual circulation” policy of subsidising investment in technology (in particular semiconductors), to the US’s CHIPS Act (again focused on technology) and Inflation Reduction Act (focused on climate change policies), to Europe’s Next Generation EU funds (tech and climate change) and Japan’s recent initiatives on carbon reduction and defence, most major economic powers plan to spend vast sums or provide tax breaks to deliver these objectives.

While these policies could equate to one per cent of GDP every year for the next decade if fully utilised, they threaten to sacrifice long-term efficiency and/or economic growth. They may also create inflationary tailwinds that last for many years, putting upward pressure on interest rates, and come at a significant fiscal cost that must be managed to ensure long-term stability.


Figure 7: US investment in manufacturing structures has boomed

Source: Aviva Investors, Macrobond as at 31 December 2023.

Read the House View

House View 2024 Outlook

PDF 4.9 MB 32 pages

The global economy avoided recession in 2023, despite the ongoing effects of tighter monetary policy and elevated energy prices. Much of that was down to the resilience of the US, which is now expected to have grown more quickly in 2023 than in 2022.

Never miss the latest House View

Sign-up to receive quarterly emails on our collective view of global markets.

Please enable your browser JavaScript to view the video

Transcript  for video #

Please join us for the Aviva investors House View 2024 Outlook webcast.

I’m joined by Michael Grady, Head of Investment Strategy and Chief Economist.

I also have with me Peter Fitzgerald, Chief Investment Officer of our Multi-asset and Macro investment teams.

If you are to get an upside surprise on growth, it’s more likely to come from the US than the UK.

The slowdown in growth that we are expecting to see this year,  exposes, if you like, more fragilities in the economy, than perhaps what can be seen at the moment.

Transcript  for video #

Transcript not available

About the House View

The Aviva Investors House View document is a comprehensive compilation of views and analysis from the major investment teams.

The document is produced quarterly by our investment professionals and is overseen by the Investment Strategy team. We hold a House View Forum biannually at which the main issues and arguments are introduced, discussed and debated. The process by which the House View is constructed is a collaborative one – everyone will be aware of the main themes and key aspects of the outlook. All team members have the right to challenge and all are encouraged to do so. The aim is to ensure that all contributors are fully aware of the thoughts of everyone else and that a broad consensus can be reached across the teams on the main aspects of the report.

The House View document serves two main purposes. First, its preparation provides a comprehensive and forward-looking framework for discussion among the investment teams. Secondly, it allows us to share our thinking and explain the reasons for our economic views and investment decisions to those whom they affect.

Not everyone will agree with all assumptions made and all of the conclusions reached. No-one can predict the future perfectly. But the contents of this report represent the best collective judgement of Aviva Investors on the current and future investment environment.

House View contributors

House View archives

House View Q4 2023

PDF 4.6 MB 29 pages

House View Q3 2023

PDF 5.9 MB 29 pages

House View Q2 2023

PDF 7.7 MB 18 pages

House View 2023 Outlook

PDF 30.7 MB 80 pages

Important information


Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

The information contained herein is for general guidance only. It is the responsibility of any person or persons in possession of this information to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information contained herein does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation.

In Europe, this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK, this document is by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: 80 Fenchurch Street, London, EC3M 4AE. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 138 Market Street, #05-01 CapitaGreen, Singapore 048946.

In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business address: Level 27, 101 Collins Street, Melbourne, VIC 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom.

Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is based within the North American region of the global organization of affiliated asset management businesses operating under the Aviva Investors name. AIC is registered with the Ontario Securities Commission as a commodity trading manager, exempt market dealer, portfolio manager and investment fund manager. AIC is also registered as an exempt market dealer and portfolio manager in each province of Canada and may also be registered as an investment fund manager in certain other applicable provinces.

Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.

AIQ Investment Thinking

Get our perspective on key themes influencing investment markets globally.

Read more

AIQ Client Matters

Analysis and commentary specific to you and your industry.

Read more