European asset manager Amundi has just released its 2025 Capital Market Assumptions (CMA) report, providing a long-term economic outlook across 43 asset classes over the next 30 years. These assumptions and resulting long-term expected returns are a framework for investors’ asset allocation over the next decade.

Vincent Mortier, group CIO of Amundi, has highlighted this week that bonds are back, and the focus on equities is moving away from the US towards Europe and Asia. Returns from private assets will gradually normalise, but they will remain a key diversification engine.

“Structural changes – such as wider artificial intelligence (AI) adoption – and current valuation levels mean a shift in the pattern of returns with big implications for strategic asset allocation,” Mortier said in a note.  

The report emphasises that expectations for government bonds have generally improved for the next decade. The fiscal U-turn in Germany represents a change in landscape for European bonds, and euro yields are closer to their long-term norm and better positioned from a return perspective. The outlook for credit fixed-income assets remains positive overall, particularly for the investment grade (IG) segment and emerging market bonds. Emerging market bonds have the highest return expectations in fixed income (close to 6 per cent) and higher risk-adjusted returns, the report states.

Expectations for riskier assets have also been revised upwards over the period 2025 to 2034, with almost 70 per cent of the risky asset classes covered expected to deliver returns above 7 per cent, the report adds. The highest equity returns are expected to come from Europe (projected annualised return of 7.5 per cent) and emerging markets (7.9 per cent) – as Asia is rapidly emerging as a powerhouse in the global tech race – rather than from the US (6.1 per cent). Paris-based asset manager Carmignac has also started to re-engage with Europe and is slightly overweight in European equities. 

India posts the highest return potential in equities, according to Amundi, at 8.2 per cent for the next decade: valuations may be stretched, but the country should benefit from the US/China rivalry.  Despite the recent market movements, Amundi expects the increased appeal for Europe and emerging markets to continue, due to relatively appealing valuations and potential growth coming from new industrial policies. Sector-wise, capital expenditures (Capex) will be a stronger theme than consumption. Financials, healthcare, industrials and selective IT will benefit the most across regions, the report states.

It also highlights the need for enhanced diversification in strategic asset allocation, given inflation and rate volatility. With improved return assumptions for equities, the strategic asset allocation favours this asset class more but, at the same time, will seek balance through assets with medium volatility and low correlation with both equity and bonds. This will result in shifting some exposure from global aggregate to emerging markets bonds, and real and alternative assets. Private debt and infrastructure, in particular, are stable income providers, the report adds.

“In a pivoting world marked by rising nationalism and geopolitical fragmentation, Europe has the potential to boost its competitiveness. Asia is emerging as a global tech powerhouse, and the US will continue to reap the benefits of AI. While these trends point to a favourable growth/inflation mix for the next decade, long-term growth faces challenges from deteriorating demographic dynamics, high debt and climate impacts,” Monica Defend, head of Amundi Investment Institute, said. 

Growth outlook
Overall, Amundi sees a more favourable growth outlook for the next decade compared with last year’s assumptions. Transition costs towards net zero are projected to be lower for the next decade than in last year’s estimates, as further delays in the transition spread economic costs over a longer time frame. 

The firm expects real world GDP’s annual growth to average at 2.6 per cent, with developed markets growth at 1.5 per cent (US 2 per cent; eurozone 1.1 per cent) and emerging markets at 3.3 per cent. Asia should maintain its growth premium, fuelled by technological advancements, to create substantial investment opportunities, the report states. In Europe, increased defence spending and investments to boost innovation and competitiveness will drive productivity gains when properly targeted on specific projects. While Amundi has started modelling some of these gains, the recent extraordinary fiscal push in Germany, the plan to enhance defence at the EU level, and a potential ceasefire and reconstruction in Ukraine are not yet factored into this year’s assumptions and could lift European growth.

Inflation is also expected to be volatile and should remain above central banks’ current targets on average for the next three decades, supported by geopolitical tensions and supply disruption/reconfiguration, food security concerns, and increasing demand for strategic commodities. On average US inflation will be at 2.2 per cent; eurozone 2.1 per cent; and emerging markets at 3.1 per cent over 2025 to 2034. Therefore, the firm expects higher interest rate volatility, from higher inflation uncertainty and higher expected public debt which, combined, could exert pressure on long-term rates.

Productivity and technological advancements will provide some relief, but central banks will remain under pressure to contain inflation alongside rising public debt, the report states. Amundi’s assumptions for inflation, economic growth and potential growth lead to an upward revision of real neutral rates, particularly in the eurozone, the US and India.

Over the next decade, Amundi sees wider adoption of AI, at different speeds among countries, which should progressively boost global productivity, reaching its peak in the early 30s. However, this will not completely offset the long-term reduction in potential growth due to worsening demographic dynamics and climate damage. This will lead to lower long-term growth and a further compression in the emerging market growth premium.

For the most demographically-challenged countries (i.e. those with problems.related to changes in population dynamics, such as ageing populations, declining birth rates, and migration patterns that impact social and economic systems), AI productivity gains will offer some relief, but only countries with a positive demographic dividend will continue to enjoy sustainable higher potential growth when the impact of AI on productivity wanes. From the 40s, potential growth will be driven primarily by demographics, with the physical cost of climate change increasing across regions, the report states.