HSBC expects global economic growth of 2.6% this year, a moderate increase from 2% in 2013, while developed markets could expand by 1.8% and emerging markets by 4.9%.

Disinflationary pressures in parts of the developed world have raised the specter of deflation. This leaves central bankers with a troubling dilemma whether should they consider tightening monetary policy in response to better economic data or keep policy loose to ward off the threat of deflation, according to 2014 HSBC View.

“This is the backdrop to our key calls for the year. We think the ten-year Treasury yield will fall to 2.1% because of the persistence of low inflation, debt overhangs, and an improving U.S. fiscal position. We see global equities rising by around 6%, and high single digit returns overall, once dividends are included. Returns will be driven by decent earnings growth, rather than multiple expansion. We are overweight Europe, underweight the U.S. and Japan, and selective in emerging markets,” HSBC says.

Although global growth will pick up modestly this year, inflation is surprisingly low, according to HSBC specialists who expect global equities to return 9% and fixed income returns of 4-5%.