British multinational Aviva has downgraded its economic lookout for 2020, citing sluggish global growth and the ongoing US-China trade war.
There is now a one-in-three probability of a mild global recession in the next 18 months according to the Aviva House View Q4 2019 report.
World GDP will grow by only 2.75 per cent in 2020, down from 3 per cent in 2019 – the lowest GDP growth since the GFC.
The report states that the manufacturing sector is almost at recessionary levels due to the effects of the US-China trade war, and that the service sector may be next.
“A key factor in determining whether the current slowdown turns into something more serious, or even recession, would be a broadening in the weakness beyond manufacturing,” the report reads.
While the “hard” data has remained solid thus far, “soft” data such as surveys of service sector like the Purchasing Managers’ Indices (PMI) have recently weakened as well, suggesting that the downside risk to growth may be more likely to materialise.”
Despite the slowdown, no major economies have yet experienced a material increase in unemployment rates. But that could easily change.
The risk outlook for the global economy remains complex, with a number of factors – including the US-China trade war, a potential shooting war with Iran, and the economic fallout of the upcoming Brexit – ratcheting up uncertainty throughout the world.
A change anywhere could be the straw that breaks the camel’s back.
However, some global asset managers believe Australia is in a strong position to weather the stormy outlook and still generate returns.
DWS chief investment officer for APAC Sean Taylor said many local investors have been too cautious in 2019 and, as a result, have missed out on significant gains.
The Hong Kong-based fund manager doesn’t expect a recession in the US, China, Australia or Europe. However, he did highlight the major issue of negative deposit rates among European countries.
“We now have over $1.7 trillion of negative-yielding assets in the world and getting worse by the day,” Mr Taylor said.
“From an Australian basis, you’re actually in a really good position because you have something on deposits. Sure, you might have a few more interest rate cuts to bring deposits down to 50 basis points, but you’ve got 1 per cent yield on Treasury and a 1.5 [per cent] to 2 per cent on corporate and a pretty healthy dividend yield still after the market has gone up on equities.
“That’s not a good situation in Australia compared to what it was four or five years ago, but you compare it to Europe where you’ve got negative deposit rates. In some countries in Europe, like Switzerland, you’re actually paying to keep your money in the bank.”
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