Group believes ECB must lower rates as part of moves to kick-start economy
Michael Karagianis, head of global strategy at Aberdeen, told more than 100 non-executive director's of the group's closed-ended funds that although the US has to be the driving force for any kind of recovery, other regions have to play their role.
Speaking at the group's investment trust conference, Karagianis said that up until now, the European Central Bank (ECB) has been far too cautious about reducing interest rates due to the perceived threat of inflation.
He said: 'While inflation in some European countries is currently above the ECB's target levels, these are backward looking. The slump has spread to Europe and this will mean surprisingly low inflation in 2002 and lower rates to come.'
Karagianis believes it is probable that 2002 will see a recovery in the US and hence the global economy. He said the yield curve is the steepest it has been since the mid-1990s, which is normally a good indicator of improving growth six to 12 months later, reflecting the positive impact the Federal Reserve's easing monetary policy stance has been having.
He added: 'With the Reserve already having cut interest rates by 300 points this year and the prospects for at least one more cut, it is no great surprise the dollar has finally weakened against the euro.
'This should help the economy in two ways. Firstly, US manufacturers are struggling so a weaker dollar should improve their trade competitiveness.
'In addition, a weak euro has hurt European consumers and businesses because of the high price of oil which is, of course, priced in dollars. So Europe could benefit from a weaker dollar.'
He said the key risk to a global recovery is consumer confidence. 'If companies keep cutting staff aggressively, pushing unemployment ever higher, at some stage it could significantly undermine confidence.'
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