Uphill work for US
European asset managers foresee a hard uphill slog for America’s economy this year as it repairs damage from the crisis, and for China’s economic expansion to more than double the US, despite Beijing applying the brakes.
Peripheral Europe remains a tail risk despite bail-outs and austerity packages.
Josh Feinman, global chief economist at DB Advisors, said: “The global recovery is on track, but it’s a long climb back particularly for the US which will take years climbing back.”
He predicts 4% growth in US GDP this year, up from about 2.9% in 2010, as combined headwinds of households repairing balance sheets and a housing overhang diminish.
However, he added: “These [difficulties] will take years to get out of. If the US economy grew at 4%, it would still have to do so…to 2014 or 2015 to get to the level of wealth that would have been, had we not had the recession.”
The Federal Reserve will halt asset re-purchases by mid-2011, but not raise interest rates until at least 2012, in Feinman’s view.
Horacio Valeiras, chief investment officer at Allianz Global Investors Capital, said: “The US recovery should quicken, but the US won’t be the economic engine it has been. There will be relatively slow economic growth in the developed world, very good growth in Latin America and Asia ex-Japan.”
Feinman expects China’s boom to slow as Beijing reorients its economy to domestic demand and its population ages, but 9% GDP growth will still easily outstrip the US.
“Emerging markets will continue growing faster than the US, but the gap between the two, which has become extremely wide, will narrow,” he said.
Europe, meanwhile, will be three-speed; the core growing strongly, France and Italy less so, and the periphery sluggish at best.
The solvency of peripheral European countries is this year’s “chief concern”, according to Morten Spenner, chief executive of International Asset Management.
“The periphery has been pushed to the brink and the region as a whole is struggling to rebalance, and there is no easy way out,” said DB Advisors’ Feinman.