Aviva Investors, the asset management arm of Aviva PLC, forecasts a slowdown in global growth for 2024, with expectations of central banks shifting to easing policies as early as Q2.
This is according to the firm’s latest quarterly House View, which predicts global growth to slow to about 2.75% in 2024, down from 3.25% in 2023.
Despite the slowdown, a recession is expected to be avoided, supported by rising real incomes bolstering household consumption, which will help mitigate the impact of positive real interest rates.
This shift from a tightening cycle in 2022/23 to an easing one in 2024 is attributed to declining inflation and a softening labour market.
The European Central Bank is anticipated to be the first to cut rates, potentially in early Q2, followed by the Federal Reserve and the Bank of England. The timing and magnitude of these rate cuts will depend on evolving risks.
Regarding asset allocation, Aviva Investors sees a supportive environment for risk assets as central banks begin loosening monetary policy, favouring an overweight position in equities, anticipating solid, albeit unspectacular, earnings as key for equity markets in 2024.
For fixed income, Aviva Investors said it prefers overweighting UK and European government bonds, viewing risks as skewed to the downside while maintaining a neutral stance on corporate bonds.
Michael Grady, head of investment strategy and chief economist at Aviva Investors, said, “As we enter 2024, we have now seen the peak of both inflation and interest rates. The two key questions now become when we will start to see rate cuts introduced by the major central banks and what the ‘new normal’ will look like once rates stabilise.
“With regards to the first question, whilst this is clearly dependent on the data that we see across the coming months, it could even be as early as the first half of the year that we see the first cuts take place, with the ECB the most likely candidate for undertaking this shift before its peers.
“We expect a ‘soft-landing’ disinflation that should only require a neutral policy stance rather than an accommodative one. But even delivering that through 2024 would require 200-300bps 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 2-3%.”
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