Slippage in forecasts triggers rethink of global outlook

Old Broad Street Research says in its latest global investment strategy note that growth rates predicted for 2011 into 2012 are marginally off following a challenging first quarter to the year.

Data from the UK, US and Japan in particular for the first three months of 2011 are behind the concerns that global growth could slip this year.

Higher fuel prices in the US hitting consumption, and the unexpectedly weak 0.5% first quarter GDP growth in the UK are noted. Japan’s natural disasters have been well publicised, but OBSR goes on to state that its problems will spread more widely through the second quarter as global supply chains start to feel the impact even more.

The eurozone held up well through the period, but the risks now lie with policymakers at the ECB.

In terms of asset allocation, OBSR’s report suggests that equity exposure, while volatile, will remain a key route to obtaining a real return as compared to cash and bonds.

Emerging market equities remain attractive because, although these markets also face inflationary pressures, the ability to benefit from both local markets and currency appreciation should remaain in the second half of the year.

Markets in bonds remain challenged by the unkown impact of QE2 ending in the US come June. And although corporate bonds can offer higher income than government bonds, the capital gain story is less certain.

Property in certain locations remains an attractive asset class, for example, in central London. However, with many banks looking to offload their stockpiles of poorer performing property, the potential for capital gains is limited, OBSR suggests.

Commodities and currency likewise will remain an area of short-term volatility. Longer term OBSR prefers  emerging market and commodity currencies.


Real GDP (% Change Y/Y) 09 10 11E 12E
US -2.6 2.9  2.8 3.5
Eurozone -4.1 1.8 2.2 2.0
UK -5.0 1.3 1.9 2.5
Japan -6.3 3.9 0.4 2.8
China 9.2 10.3 9.4 9.1
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