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Economic upturn will take over 1 year: bank

Manama, July 1, 2009

Global economic recovery will be flat and will take at least another 18 months to work its way through lay-offs, write downs and rationalisations, says a report from a top European bank.

And things could get worse before they get better, probably after the summer, according to Copenhagen-based investment specialist, Saxo Bank in its Quarterly Outlook report for the third quarter of this year.

Saxo Bank believes that any prediction of imminent global economic recovery is premature as the fundamental imbalances that pushed the developed world into the financial crisis remain unaddressed.

'The market has looked too far ahead of the curve in pricing its recovery, and the fundamental problems within the economy, such as the unsustainable debt burden leading to sub par consumption growth resulting in write downs and earnings recession, remain unresolved,' said Saxo Bank chief economist David Karsbol.

'In developed economies, the consumer has yet to de-leverage, and in developing markets, export-oriented economies will require more time to restructure for sustainable growth.

'Risk appetite has increased in a nearly uninterrupted arc, as markets boldly predict a V-shaped recovery. However, we believe that the recovery will be flat-to-w-shaped and will take at least another 18 months to work its way through lay-offs, write downs and rationalisations.'

'It is no surprise to see strong stock market bounces when the economy, as a result of the outright panic we have seen, has been so depressed,' he said.

'However, the degree and persistence of the rebound in risk appetite has been remarkable. Unfortunately, at some point during the next six months, we expect risk appetite to plummet again as the market realises that it has raced ahead of itself.'

The main question for the medium term will be long interest rates which, if they continue rising, could create an even more chaotic and volatile market environment than the already ugly one envisioned in the Saxo Bank's baseline scenario for 2009 called Turbo-gloom and Anno Horribilis.

'I would advise investors to fasten their seatbelts and buckle up for a bumpy ride as fear and negativity could make a strong comeback when the summer is over,' Mr Karsbol said. – TradeArabia News Service




Tags: economy | Manama | Saxo Bank | Global Outlook |

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