Aviva Investors says there is a one in three chance of a global recession due to weak global growth that is expected to persist into next year.
World trade and manufacturing are already at recessionary levels, the firm said, mainly due to the trade frictions between China and the US.
The danger is growing that the slowdown could spread to the more domestically-focused service sector, according to the asset manager.
Aviva Investors notes that central banks eased monetary policy and adopted a dovish bias, “a stance that is likely to be maintained throughout 2020”.
World GDP is set to grow by around 3% this year and 2.75% in 2020 – the lowest for a decade.
This weaker growth backdrop should create a headwind for equity markets, and although the easier monetary stance will provide some support, its influence may be felt more within fixed income assets such as government bonds and corporate credit.
Michael Grady, head of investment strategy and chief economist at Aviva Investors, said Aviva Investors had a neutral allocation to equities.
“Our preference is for a modest overweight to sovereign bonds, credit and emerging market debt. Direct and indirect central bank actions should provide support and help mitigate the risks of a serious recession and default cycle.
“We continue to prefer to be overweight US dollars due to heightened risk aversion.”
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