Europe 'moving towards recession'
Manama, November 30, 2011
The world economy has clearly lost momentum with inflation slowing in emerging countries, while growth in Europe is likely to be zero next year and possibly the following year too, said Dexia Asset Management chief economist Anton Brender.
Brender was in Bahrain yesterday as part of his company's Middle East road show.
"The euro sovereign debt crisis - which has now clearly spread beyond the periphery - is continuing to shake financial markets and while we do not expect the euro to collapse or disappear there is definitely a possibility that it could," he noted.
"It is now up to European governments to put the policies in place that will ensure the continuation of the euro but I believe that there is no country in the euro zone that wants to give up the single currency," he added.
Brender said, "While trade spill-overs from the euro crisis are manageable, financial ones could be much larger especially if stress spreads to core euro countries."
"Fortunately, emerging countries do have some leeway to stimulate their economies if needed, he noted."
Brender pointed out that the euro zone was clearly moving towards a recession. "Activity has clearly lost momentum and a mild recession is now likely," he explained.
"To put an end to the sovereign debt crisis and avoid a deeper contraction, a political turnaround has to take place. We believe it will take place in the coming month, but in the meantime, volatility will remain high."
He forecast the US economy should avoid a double dip, but growth will remain subpar.
"The fiscal debate will remain a source of uncertainty and could possibly trigger a new confidence shock in the US," he said.
"The unemployment rate will stay elevated and the Federal Reserve should keep its accommodative policy, possibly launching more quantitative easing if the recovery seems at risk.
"In this environment, US 10-year interest rates will remain at their depressed levels for a while."
He added that in spite of the global slowdown in the economy unless geopolitical risks materialise, oil prices have no reason to jump... but should not fall much either!"
Global head of asset management Koen Maes said that equity valuation were extremely attractive to long-term levels but that volatile markets required active management.
"Our preferred investment themes are high dividends, convertible bonds and alternative investment strategies," he added.-TradeArabia News Service