Aviva Investors sees ‘modest but meaningful’ improvement in global growth outlook
Aviva Investors, the global asset management business of Aviva plc (Aviva), expects global growth to pick up modestly in 2020, having established a trough at around the turn of the year. More importantly, worries about a more severe downturn or even recession next year have diminished significantly.
The main reason for this is the agreement of a Phase 1 trade deal between China and the US, although tentative evidence of a gentle rebound in the industrial sector has also helped.
Aviva believes overall, global growth should pick up to around 3.25 per cent in 2020, up from 3 per cent this year. This is still below potential, implying that already-muted inflation pressures are likely to remain so for the foreseeable future. World trade should also recover gently next year after an extended period of stagnation.
Risks are more balanced than three months ago, according to Aviva, but are still tilted slightly to the downside. This, alongside the combination of steady growth and low inflation, means that central banks will likely retain an easing bias, even if the provision of any additional stimulus is limited. In general, an improving outlook for risk assets is expected.
Michael Grady, Head of Investment Strategy and Chief Economist at Aviva Investors, says: “Modest improvements in both the growth outlook and risk sentiment have encouraged us to take a more positive view on risk assets. At this stage of the cycle, we prefer to be overweight global equities and have a broadly neutral view on global bonds.
“Although many equity valuations are at or above longer-term averages, we think some further margin expansion is possible given low discount rates, while a gentle recovery in earnings growth should also help.
“Neutral allocations to fixed income – government and corporate – are justified by the tension between the growth recovery but low inflation and accommodative central banks.”