The big picture
US exceptionalism loses its lustre
The final destination of US trade policy may be a little clearer, but a roughly six-fold increase in US tariffs on goods imports, to levels last seen in the 1930s, is likely to result in an appreciable slowing of the US and global economies.
We expect global growth to be in the range of 2.75-3 per cent this year and next. While major economies should avoid recession, this would represent the weakest rate of global growth in recent decades, outside of major recessions.
The most notable slowing is in the US, where growth is expected to halve this year to 1.4 per cent as higher tariffs suppress consumer spending and investment. The stagflationary nature of the shock is likely to mean the Federal Reserve remains cautious about cutting rates.
China’s economy is also likely to slow as the US tariffs weigh on exports and amid ongoing weakness in the country’s property sector. By contrast, euro zone economic growth should pick up modestly this year and next, helped by stronger consumer spending and a significant increase in spending by the German government. These factors should more than offset the impact of US tariffs.
In the UK, a strong start to 2025 is not expected to last. The underlying picture is notably softer than headline GDP might suggest, and we expect households to remain cautious in the face of a softer labour market and given the risk of further tax rises.
While inflation generally remains above target it has been heading lower. Nonetheless, the full impact of US tariffs has yet to be felt.
Figure 1: Aviva Investors’ growth projections (per cent)
Source: Aviva Investors, Macrobond. Data as at June 30 2025.
What this means for asset allocation
Equities
Global equity markets, having recovered strongly since April, reached new all-time highs in early June. Despite the impressive recovery, we disagree with the idea they are ignoring risks and headwinds. Indeed, we see upside potential for markets in the second half of the year.
While valuations were, and still are, a concern, high valuation ratios alone are rarely a catalyst for a de-rating. The environment is supportive of equities: earnings growth is robust despite the tariffs, profit margins are historically high and balance sheets are healthy.
In the absence of further geopolitical shocks or a sharp re-escalation of trade wars, equities have scope to rise further in the second half of the year.
Figure 2: Asset allocation – Equities

Note: The weights in the asset allocation table only apply to a model portfolio without mandate constraints. Our House View asset allocation provides a comprehensive and forward-looking framework for discussion among the investment teams.
Source: Aviva Investors, Macrobond. Data as at June 30 2025.
Government bonds
While we are broadly neutral on government bonds, we have a preference for UK bonds over US and German ones. This reflects our view that UK interest rates are likely to be cut quicker and by more than the market anticipates coupled with the impact of looser fiscal policy in the US and Germany.
We also believe the European Central Bank (ECB) is unlikely to cut interest rates any further, limiting the scope for euro zone bond markets to outperform.
In Japan, we expect the long end of the yield curve to flatten as it seems likely the government will switch to issuing shorter dated bonds as opposed to longer maturities as monetary policy is tightened further.
Figure 3: Asset allocation – Government bonds

Note: The weights in the asset allocation table only apply to a model portfolio without mandate constraints. Our House View asset allocation provides a comprehensive and forward-looking framework for discussion among the investment teams.
Source: Aviva Investors, Macrobond. Data as at June 30 2025
Credit
Corporate bond markets have recovered strongly, in tandem with equities, after President Donald Trump rowed back on some of his trade threats. However, with the yield spread over comparable government bonds once again close to historically low levels, it is unclear whether investors are being adequately compensated for the additional risk.
Overall, we maintain a cautious stance with a preference for European bonds relative to US peers, with high-yield European issuers comparatively less exposed to the risk of default. While the auto and pharmaceutical sectors look vulnerable to the threat posed by higher tariffs, the banking and communications sectors looked to be in a stronger position.
Figure 4: Asset allocation – Credit

Note: The weights in the asset allocation table only apply to a model portfolio without mandate constraints. Our House View asset allocation provides a comprehensive and forward-looking framework for discussion among the investment teams.
Source: Aviva Investors, Macrobond. Data as at June 30 2025.
Private Markets
Private debt continues to offer attractive all-in yields and downside protection. Infrastructure debt has been resilient: against a backdrop of elevated public debt levels, infrastructure investment is increasingly viewed as a policy lever for industrial policy to support economic growth, the energy transition, and digital transformation. Private debt looks attractively priced relative to public issues. The higher interest rate environment and illiquidity premia mean yields are attractive.
Real estate markets have stabilised, revealing a more selective but compelling opportunity set that includes UK single family housing, Spain’s multi-family investment, and logistics and warehousing. In a year marked by macroeconomic and geopolitical uncertainty, private markets offer investors a diverse mix of opportunities with exposure to long-term structural trends and illiquidity premia. Our most recent Private Markets Study revealed a deepening conviction in the asset class with more than 70 per cent of institutional investors expecting private markets to outperform public markets over five years.
This conviction is not merely cyclical as it also reflects a structural shift in how investors are approaching portfolio construction in a world of heightened volatility and evolving risk premia.
Four key investment themes
1. Erosion of American exceptionalism
The phrase American exceptionalism can be interpreted in a variety of ways, but there is no question that for years US financial markets, and the country’s place in the global economy and geopolitics, has been unique.
The prospects for the US dollar, US Treasuries and US equities are under scrutiny like rarely before. How US financial assets fare relative to international peers will depend to a large extent on the US administration’s trade policies, and its foreign policy, as its allies begin to question Washington’s reliability as a partner.
Figure 5: The dollar, and US equities, are highly valued relative to the rest of the world
Source: Federal Reserve, Bloomberg, Aviva Investors, Macrobond. Data as at 30 June 2025.
2. US domestic upheaval: Projects for 2025 and beyond
Following through on many election pledges is often a surprise in politics. President Trump had aggressively raised tariffs on imports, though the adverse market reaction and threat of a recession led to him hastily reversing course.
This imposition of broad-based tariffs can be thought of as a negative supply shock that, when permanently imposed, raises prices and decreases an economy’s potential growth. Uncertainty about future tariffs may deter US investments, which might cancel out any benefits from protection from foreign competitors. So far, while tariff revenues have been collected, it has been harder to discern a large economic impact on inflation or company profits. Other domestic policy shifts may also eventually impact data collection, labour supply and wages, and specific sectors such as tourism and hospitality, agriculture, medical research, and education.
3. Rapid evolution of tech revolution
Fears a drop in the cost of ‘training’ artificial intelligence (AI) models would dampen revenues have been largely assuaged. Accelerating usage, particularly in China, and a significant increase in planned capital expenditure points to lower pricing being met with higher consumption.
Although enthusiasm is global, the US remains firmly in the lead. It dominates AI adoption, with firms like JPMorgan already quantifying AI-driven revenue and cost savings across multiple business lines. Moreover, sectors such as telecoms, professional services and finance, that stand to benefit most from the adoption of AI, make up a bigger share of economic output in the US than in its other main competitors.
Figure 6: Data/AI capital expenditures, selected US tech companies
Source: Factset, Morgan Stanley Research. Data as of 30 June 2025.
4. Monetary easing: Marching out of step towards the same ‘neutral’ destination
Central banks continue to exercise caution after the post-Covid inflation surge proved larger and less transitory than most had anticipated. While not everything is forecastable, and the Russian invasion of Ukraine caused a spike in oil and gas prices that could not have been anticipated, policymakers were slow to react, as evidenced by the fact inflation is still widely above target for a fourth year.
This means monetary policy is being kept in slightly restrictive territory by the US central bank, Bank of England and their counterparts in Norway and Australia. Meanwhile, the Bank of Japan is confronting higher inflation but is unsure of whether it will prove durable, and is only slowly hiking rates, while the ECB is in a different position altogether, having been able to cut rates more aggressively.
Figure 7: Core inflation in the major nations
Source: Aviva Investors, Macrobond. Data as at 30 June 2025.
Read the House View

House View Q3 2025
The erosion of US exceptionalism, US domestic upheaval, rapid evolution of the tech revolution and monetary easing, all feed into our asset allocation views this quarter – find out more in our latest House View.

Webcast: House View Q3 2025
In our latest House View webcast, our experts will share their thoughts on the market and economic outlook, including looking at where inflation, disinflation and productivity rank as potential risks in 2025.
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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

Michael Grady
Head of Investment Strategy and Chief Economist

David Nowakowski
Senior Strategist, Multi-asset & Macro

Joao Toniato
Head of Global Equity Strategy

Vasileios Gkionakis
Senior Economist and Strategist
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