Royal & SunAlliance Investments says it expects the global economy to be tipped into a recession in one of the first investment outlooks published since attack on the USA.
It says the downturn will be deeper than previously expected but its impact will be softened by deeper interest rate cuts.
R&SA says that in the short term a “pro-cyclical” investment climate appears inappropriate as the global economy faces renewed weakness.
But it also warns that markets may also overshoot on the downside with signs markets are expecting a significant deterioration in fundamentals.
The fund manager also believes the stock market recovery will be more difficult to predict because of fears about futher incidents.
It also says that in the run up to the Gulf War, US consumer confidence declined but improved when it became clear most people in the US were not in direct danger.
This is clearly not the case this time. Recent events are likely to have a more profound affect on consumer behaviour and on a subsequent recovery, the fund manager believes.