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Bullish views for 2010?

Finance Blogger: Anthony Harrington Anthony Harrington

Despite severe doubts about the stability of at least a handful of European economies and a stock market that by the end of the first week in February seemed to have stalled, at least temporarily, Bank of New York Mellon Asset Managers have come out with one of the most positive global growth forecasts so far for 2010. However, that forecast, “Global Market Outlook” was published in January, before the Greek sovereign debt crisis boiled up to its current level.

BNY Mellon Chief Economist Richard Hoey argues that while the International Monetary Fund has revised up its 2010 global growth forecast to about 3%, this probably underestimates the amount of growth the world is going to see through the coming year. Hoey is hugely optimistic that the various “quantitative easing” and fiscal stimulus initiatives undertaken by many countries around the world have indeed seen off the threat of long-term recession or even depression—at least for now.

As he puts it: “The global emergency rescue of the financial system and the economy was a major success, at least from a short term cyclical perspective and probably from a long term perspective as well.” There is now a growing body of evidence, he argues, that the combined efforts of many countries to reflate their economies has in fact succeeded in starting a global expansion.

However, Hoey is not expecting the usual bounce off the bottom that tends to characterize the ending of recessions. If the normal growth rate for the US economy in recent times has been 2.5%, he argues that the US growth rate through 2010 will be higher than the normal trend, at 3% to 3.5%. However, this would still leave it lagging the kind of growth you would expect if there was a normal bounce back.

The trend across the developed world is likely to be one of gradual financial recuperation, despite continuing hits from residential real estate and commercial property, both of which could see prices falling further. However, in the same report, Ben Russon, an investment manager with BNY Mellon subsidiary and fund management specialist Newton Investment Management, argues that the UK will probably lag this growth curve by some way. “The UK may well be entering more austere times, with economic activity muted for some time.” Despite this, he expects UK companies with strong enough balance sheets to be able to show reasonable profit gains. The economy is not out the woods yet, but there are quality companies available that are not reliant on the economy being clearly on track for recovery, he says.

On Europe, the Bank’s Global Outlook Report has been rather overtaken by the fast developing “Greek tragedy.” Raj Shant, investment leader, European Equities at Newton Investment Management, argues that “Eastern Europe also seems less likely to implode than it did in the early part of 2009. Strong policy action from the EU, the ECB and the International Monetary Fund and the passing of the immediate crisis has bought the most beleaguered countries enough liquidity and time to work through their problems.” Time, it seems, might just be running out, and not for Eastern Europe so much as for mainstream euroland. However, Shant does rather prophetically note that “German patience with Ireland, Spain and Greece, for example, may wear thin if it feels that they are dragging their feet tackling structural problems.” The Greek tragedy currently being played out has still to run its course and it may fray more than German patience before it is done…

Further reading for global growth



Tags: Bank of New York Mellon , economic recovery , EU , GDP growth , global view
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