Aviva Investors, the global asset management business of Aviva plc (Aviva), expects weak global growth to persist next year, with a one in three chance that it could lead to a global recession. World trade and manufacturing are already at recessionary levels, in large part because of the ongoing spat between China and the US. The danger is growing that the slowdown could spread to the more domestically-focused service sector.

In response, central banks have eased monetary policy and adopted a dovish bias, a stance that is likely to be maintained throughout 2020. The absence of any significant inflationary pressure has made this adjustment more straightforward. 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. The easier monetary stance will provide some support, although this 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, says, “Having marked down our economic outlook, and with increasing concern about downside risks, we are cautious about the outlook for risk assets, with 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.”