There are a host of tailwinds that should support a revival in global growth across 2026, according to Aviva Investors, the global asset management business of Aviva.
These include the lagged impact of easier monetary policy, as well as rising business investment from both tech and more traditional cyclical sectors.
These factors “should provide” a constructive backdrop for risk assets.
Aviva Investors’ macro investment team expects global growth of around 3% in both 2026 and 2027, a little lower than in 2025.
However, the calendar-year averages mask the extent of the recovery with quarterly growth compared to a year earlier in both advanced and emerging market economies, expected to bottom in Q4 2025 and rise through to Q4 2026.
Looking further ahead through 2026, it is expected that most central banks will end their easing cycles by mid-year, with rates around neutral and underlying inflation converging to target.
With little spare capacity likely to have been created, Aviva Investors’ growth view for H2 2026 could see some markets look to a modest move higher in rates.
As long as rate moves are driven by stronger demand, this shouldn’t derail risk asset performance, Aviva note.
Inflation divergence
Inflation dynamics are likely to differ across the major economies in 2026.
In the US, the full impact of tariffs should pass through into inflation by early 2026 and keep measured inflation above target throughout the year.
In the eurozone, core inflation should remain around the two per cent target, while in the UK, the current elevated inflation rate is expected to slow more markedly through 2026 to end the year at around 2%, note Aviva Investors.
While that represents a relatively benign global inflation outlook, potential upside risks may emerge as spare capacity is eroded with pressures potentially reappearing in both goods and services inflation.
The growth and inflation backdrop leads the firm to have a neutral view overall on duration.
AI and equity impact
The investment team expects AI-related capex spending will become an increasingly important global driver of business investment.
However, the AI thematic carries its own set of risks.
The return on investment will need to become clearer, with the adoption and embedding of AI into business practices being key to delivering on that expected return.
While initial data suggests robust returns by adopting firms, this is largely based on anecdotal evidence and visibility remains low.
Hence, risks on this are likely to add to equity and credit market volatility in the year ahead.
In terms of asset allocation, Aviva Investors maintains a bullish view on equities, largely driven by the broadening of the AI theme and the recovery in industrial and other traditionally cyclical sectors.
That recovery, following two years of a downturn for most cyclical stocks not directly exposed to AI/technology, begs the question of whether the broad consensus that we are in a late cycle stage with the risk of an “AI bubble” bursting is misplaced, observe Aviva.
Equity markets find themselves at the junction of a powerful technology and investment cycle that has significant further room to run alongside a traditional cyclical recovery, albeit a slow one.
Aviva Investors holds a neutral position in fixed income, but with a bias toward higher yields as we progress through 2026, predicated on expectations of a revival in global growth, as well as some pricing in of risk premia due to wide, or widening, fiscal deficits.
Some further curve steepening may be in the offing, especially in Europe.
However, curve flattening could emerge later in 2026 as markets begin to contemplate potential hiking cycles.
In currencies, there is likely some further dollar downside to be expected early in the year, supported by improving global growth and renewed concerns over the Federal Reserve’s independence.
However, as US growth rebounds later in 2026, the dollar may find fresh support.
“Over 2025, cross asset returns have been remarkably solid,” said Michael Grady, head of investment strategy and chief economist at Aviva Investors. “The market disruption caused by US tariffs and other global geopolitical events this year proved to be short-lived. And while much of the hype has been on the growing AI theme, returns have been even better in previously less-loved corners of the market, such as European banks.”
“Looking ahead to 2026, we think the macro backdrop should improve over the year,” Gray added. “We expect the tariff-related headwinds for both US and global growth to be at their worst around the end of 2025 or early 2026. As we head further into 2026, we predict most central banks will likely end their easing cycles, with some markets potentially considering a modest move higher in rates, while underlying inflation should converge to target.”
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