Global recovery is to be led towards the end of the year by the US. Although parts of Europe and Asi...
Global recovery is to be led towards the end of the year by the US. Although parts of Europe and Asia are in recession, tight monetary policy is set to help these economies and increase consumer spending.
Rupert Carnegie, head of research and strategy at Henderson Global Investors, says: 'The economic outlook remains uncertain, but market indicators are positive; valuation was as good in September as in 1998; liquidity is extremely positive and the earnings picture is less awful than it was.'
Among the major economies, Japan is experiencing the deepest recession, states Carnegie. Industrial output fell by 14% in the first nine months of the year and service output has been falling for the last six months. Total economic activity fell by almost 4% between the first and third quarters ' and looks set to fall further in the next few quarters.
Giles Keating, chief economist at Credit Suisse First Boston, agrees Japan is falling deeper into recession.
Industrial production continues to fall and consumer and private capital spending is continuing to fall. However, on the positive side, Keating expects the contribution from net exports to be positive, as yen weakness has improved competitiveness.
Germany is in recession, says Carnegie. Survey data suggests the economy will not improve in the next quarter, but could begin growing again by the second quarter of 2002. Germany is underperforming the eurozone ' French GDP increased by 0.5% in the third quarter ' which should avoid a recession.
Although the October Ifo survey fell again, some eurozone confidence indicators have shown signs of bottoming, such as the Belgian leading indicator and Italian industrial confidence. The eurozone Purchasing Managers index has fallen sharply and Keating thinks this means it is close to bottoming.
Carnegie says: 'The US will lead the way, but investment spending will remain a drag throughout next year, so GDP growth will only return to trend by the end of the year. The eurozone and the UK are following the US lead, but will fare better due to the lack of imbalances.
'Further interest rate cuts are possible in the US and Europe. The ECB has plenty of room to cut rates as inflation falls below its 2% target and growth remains below trend. Interest rates will be held at low levels until economic recoveries look assured. Modest monetary tightening may occur late in 2002.'
Keating thinks in the US November sales are likely to stay at lofty heights, but below October's pace. The spike in vehicles sales should clearly boost fourth quartile consumer spending.
A question of selectivity
Watchdog interviewed 13,000 people
Debate over loyalty bonuses