Synchronized global growth, a modest comeback for inflation, and geopolitical risks are on the horizon, according to BlackRock’s 2018 investment outlook.

However, the global economy still has “room to run” in 2018 and beyond, the investment firm says in a report released Monday. Also, it says there will be fewer surprises for upside growth.

Expect a “modest comeback” for inflation, led by the U.S., with the Federal Reserve slowly normalizing policy, the report says. The firm predicts three 0.25% rate increases in 2018 by Fed, with a fourth if the central bank expects tax cuts to raise inflationary pressures.


“We see 2017’s surprising soft patch as fleeting and expect markets to grow more confident in the inflation outlook. Why? Wages are grinding higher and one-off factors, notably an adjustment to how wireless data costs are measured, will wash out of inflation readings,” the report says.

“As a result, we see higher U.S. yields ahead and prefer inflation-protected bonds over the nominal variety,” it adds. This doesn’t hold for the eurozone and Japan, though, where BlackRock expects the ECB and BoJ to “keep policy loose.”

The report says low market volatility could persist, however, and it finds few signs of leverage building in the financial system. The exception is China, where “much-needed economic reforms risk slowing growth and triggering temporary credit crunches.”

BlackRock favours economic risk in equities over credit “given tight spreads, low yields and trade risks.” Those include the NAFTA renegotiations, which the report considers a barometer for American trade policy and its impacts on the global economy. “Any breakdown in NAFTA would be an ominous sign for global trade,” the report says.

The firm says it likes financials and tech, and sees rising profitability in Japan and emerging markets powering equity returns.

Read the full report here.