The current global expansion is set to run until 2020, with above potential growth in most countries in 2018 and 2019. However, the global GDP growth has started to decelerate and we expect it to slow further in 2020. At this stage, the main driving force behind the expansion is domestic demand. Global trade, which lost momentum in H1 with uncertainty about tariffs, is not expected to drive growth in 2019. However, with the output gap progressively closing, global inflation is expected to continue picking up; this is particularly true in the US where the economy is reaccelerating.

While in the Eurozone, signs of upside pressure on core inflation are still to be seen. This quarter, our return expectations on US cash have risen on stronger US growth. On the other hand, for equities, and core Eurozone bonds, our expected returns were revised slightly downwards relative to Q1 on the 3 to 5-year horizons, due to disappointing earnings on European equities and stretched valuations on the bond side. The risk-adjusted returns for the equity class across the major regions remain significantly higher than for the fixed income class in the medium and long-term.