Aviva Investors, the global asset management arm of Aviva PLC, continues to expect a robust global recovery in the rest of 2021 and throughout next year, although growth is expected to slow sequentially.
Moreover, risks to growth are now judged to be balanced, largely because of downside concerns in China and some re-opening frictions. Global growth should reach 6.5 per cent this year and 4.5 per cent next.
Inflation has risen more rapidly than expected, partly because of factors such as energy prices, but partly because supply has struggled to keep up with rapidly reviving demand. Much of this is expected to be transitory, a view shared by most developed market central banks. As a result, they are not expected to raise policy rates for some time. Compared to three months ago, upside inflation risks are slightly higher, but it is still projected to fall back in 2022.
The higher inflation peaks and the longer it persists, the greater the danger that it becomes more entrenched in the minds of business, households and governments. If it were to feed more meaningfully into the labour market in the form of higher wage demands, then monetary authorities might have to respond more aggressively. As Covid-19 worries subside, fiscal support will fall away automatically, but fiscal policy is not expected to be tightened significantly in most places.
Michael Grady, head of investment strategy and chief economist at Aviva Investors, says: “Our constructive outlook for growth means that our asset allocation remains broadly pro-risk and we continue to be modestly overweight global equities. However, we have scaled back that position marginally because of growing pains which could impact sales and margins.
“We have also tilted to a mix of more defensive sector exposures such as healthcare in addition to existing cyclical sectors such as energy and industrials.
“We also remain modestly underweight duration, but have also scaled back that position because of the more balanced distribution of risks regarding global growth. Comparatively tight spreads mean that we continue to see corporate credit as less attractive than equities.”