The global economic recovery is likely to slow in 2022, according to Aviva Investors, although it forecast that the new Covid-19 variants are likely to ‘defer’ growth, rather than create permanent losses.
In its House View 2022 Outlook, the firm said that, across the globe, inflation has consistently exceeded expectations during the pandemic and that it continued to present a challenge to central banks.
Nevertheless, many of the reasons for higher inflation dictate it should fall back next year, as world GDP is expected to increase by more than 6% this year and by over 4% in 2022, Aviva Investors said.
“We retain a moderate positive position on equities, funded by an underweight position in credit, since equities generally fare better than credit in the middle stages of the business cycle. The prospect of rising rates volatility also favours equity over credit,” said Michael Grady, head of investment strategy and chief economist at Aviva Investors.
“We maintain a negative stance on government bonds because of upside risks to inflation as well as the tightening bias from global central banks. Rate hikes could happen faster than markets currently believe and expected terminal rates look potentially under-priced,” he added.
In Europe, 2022 is set to be another year of strong growth, according to the report, although Delta will, and Omicron may, hinder progress temporarily.
The revival of global trade flows is likely to benefit European economies, while Europe’s NextGenerationEU fund 2022 should boost corporate and public investment across the region.
The European Central Bank is also on track to reduce stimulus gradually and to eventually deliver the first rate hike for more than a decade.
Elsewhere, emerging market economies are likely to face tougher challenges, according to Grady.
“Emerging markets are expected to under-perform developed markets in both currencies and equities. EM headwinds include modestly slower growth, monetary policy normalisation and the risk of higher real rates, as well as the more idiosyncratic risks from politics and regulation,” he said.
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