This outlook provides a summary update of our economic and asset class views following the quarterly CIO Day. These views are supported by 2025 and 2026 forecasts for GDP growth and inflation, along with 12-month (June 2026) targets for key policy rates and fixed income, equities, commodities and FX markets.
Although peak uncertainty over trade policy is likely behind us, clarity on its impact is still lacking. Attention has also now shifted to U.S. fiscal policy and its possible implications for both the U.S. fiscal deficit and GDP growth. Deficit spending could help stabilise U.S. growth at low levels in 2025 and 2026. China’s growth is expected to slow slightly this year and next, despite policy stimulus, Eurozone growth may prove relatively resilient, albeit at low levels. Falling Eurozone inflation will also contrast with higher price rises in the U.S.
Looking ahead over the next 12 months, we expect to see modest further equity market gains, but investors should be prepared for volatile financial markets in coming weeks and months. U.S. Treasury and German Bund yields are expected to stay elevated, with investment grade (IG) and high yield (HY) markets offering opportunities but EM Sovereign spreads vulnerable to policy risks. Continued strong demand will drive the gold price higher over a 12-month horizon. Oversupply will likely keep oil prices subdued. We expect a weaker USD with upward pressure on the EUR and JPY, but a mild depreciation of the CNY.
This complex set of factors means that it may make sense for investors to look again at portfolio composition. Reduced capital inflows into the U.S. could provide scope for a broader regional diversification of investments, for example within a long-term strategic asset allocation.
