Fears about the outlook for global economic growth among large institutional investors have risen to their highest level in more than a quarter of a century, as Russia’s war in Ukraine enters its third month.

A net 71 per cent of fund managers in March said they expected the global economy to weaken over the next 12 months, according to a widely followed Bank of America survey that has data stretching back to 1995.

“Investors are struggling with the prospect of a really big slowdown in economic growth over the next six months. It is still only a minority that believe that a recession is coming but that view is changing quickly,” said Michael Hartnett, chief investment strategist at Bank of America.

BofA canvased views from 292 investment professionals who together oversee assets of $833bn for pensions plans, insurance companies, asset managers and hedge funds.

Stagflation — an unwelcome combination of below trend economic growth and above trend inflation — is now anticipated by two-thirds of the fund managers surveyed by BofA. That marks the worst reading for this measure since August 2008, the month before the implosion of Lehman Brothers.

Growing worries about the outlook for inflation have surpassed investors’ concerns about the wider implications of the war in Ukraine, which have moderated owing to the withdrawal of Russian troops from around Kyiv. Inflation data released on Tuesday showed that US consumer prices rose 8.5 per cent in March, a pace not seen since 1981.

Expectations for company profits have deteriorated sharply and risks to financial market stability have again returned to the extreme levels seen in March 2020 during the early phase of the coronavirus pandemic and during the worst days of the global financial crisis in 2008, according to the survey.

Hartnett said a “staggering disconnect” had emerged between investors’ downbeat expectations for economic growth and equity allocations among global fund managers, which as a group still held a net overweight position in stocks.

“Everyone is bearish on the outlook for growth, inflation, the Fed and US interest rates, but asset allocators are still overweight equities,” said Harnett.

Cash represented the largest “overweight” position held by global fund managers in March followed by commodities, healthcare stocks and energy while close to 70 per cent of the asset allocators were “underweight” bonds.

“Investors don’t like equities much at this stage of the cycle, but they really hate bonds,” said Hartnett.

He cautioned that recession warning signs were becoming clearer in the US property market and among small businesses, which account for almost half of US private sector employment.

According to the National Federation of Independent Business, the number of small business owners expecting to see an improvement for their company over the next six months sank in March to the lowest level in the entire 48-year history of the NFIB’s monthly survey, published on Tuesday.

“Small-business owners remain pessimistic about their future business conditions. Their expectations for sales growth and business conditions later this year are in the tank,” said Bill Dunkelberg, the NFIB’s chief economist.