Global growth slowed to three per cent on an annual basis in the middle of 2019 and is expected to remain below three per cent for the next 18 months, according to a Q4 report by Aviva Investors.

“That would represent the weakest sustained period for over a decade,” the report said. “We expect all major economies to be growing below potential in 2020, with unemployment likely to rise modestly and wage and inflation pressures set to remain muted.”

The report put the probability of a mild global recession over the next 18 months at around one in three.

Weaker growth expectations and low inflation are leading many central banks to ease monetary policy, it added, and this easing may continue if necessary despite currently low policy rates.

With this in mind, the report highlighted that Aviva is positioning portfolios conservatively for a further slowdown. “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,” said Michael Grady, head of investment strategy and chief economist at Aviva Investors, in a press release.

Given expectations that a global recession isn’t imminent or inevitable, the report noted the preference to take exposure to risky assets through corporate credit, with slight exposure to Euro investment grade and high yield. As well, emerging market spreads and duration are attractive, it added.

“Our preference is for a modest overweight to sovereign bonds, credit and emerging market debt,” Grady said. “Direct and indirect central bank actions should provide support and help mitigate the risks of a serious recession and default cycle.”

As well, the report said it expects U.S. and Japanese currencies to outperform the euro and commodity currencies. “We continue to prefer to be overweight U.S. dollars due to heightened risk aversion,” Grady noted.