Fixed income enters Golden Age

THE end of the Great Moderation is introducing an era of volatility in growth and inflation. Investors are adjusting to the contours of the new global paradigm, but ultimately, a new regime of higher bond yields makes fixed-income assets attractive for long-term investors.

Global economy: Despite mounting macro challenges, the global economy has managed to remain resilient. In the United States, weakflation – the combination of weak growth and elevated but falling inflation – remains our base case. We expect real gross domestic product growth of between 1 per cent and 1.5 per cent, and inflation to descend to 2.5 to 3 per cent in 2024.

In the euro economy, we see headwinds from higher global interest rates, high energy prices, and persistent inflation as ongoing challenges and expect a mild contraction before some improvement in 2024. In China, our expectations of increasing fiscal stimulus are now materialising, supporting our still-above consensus GDP forecast.