With the potential impact of the credit crunch still provoking discussion on the direction of equity markets and economic growth, what are the latest views on future movements?
Opinion on the possibility of a recession in the US still appears to be mixed. In the US, recession is usually defined as two successive quarters of falling Gross Domestic Product as judged by the National Bureau of Economic Research. Given the action taken by the US Federal Reserve to reduce interest rates sharply to 3%, there is a view that this will not happen. Conversely, there is another view that a decline in growth to 0.6% last quarter, from 3.9% the previous one, indicates a significant decline in economic activity and is stoking talk of recession.
Elsewhere, there is comment that China may be less prone to the fallout from a slowdown in the US economy. While a weakening of the world's largest economy may have an impact on Asian markets, China and many of the other Asia-Pacific countries have diversified their trading partners and depend less on the US than before. In China, domestic investment, consumption, strong demand for natural resources, the Beijing Olympics and rising government expenditure on roads, railways and power are seen as key underlying factors that will drive the economy.
Japan, however, is not viewed so favourably with a combination of a strong yen and stagnant domestic demand stifling investors' hopes for the country.
Meanwhile, the natural resources theme continues to drive interest in Latin America where economic growth has been assisted by a healthy export market. This has helped to improve domestic incomes, which, in turn, has created a growing consumer sector.
Russia has also been highlighted as an economy that is largely detached from the fallout of the credit crunch. Russia has two key resources that the rest of the world wants and needs - oil and gas. A proportion of the revenue from sales of oil and gas has been held back to create a reserve that has been used in part to increase wages, which has provided the stimulus for a growing consumer market. There is also a view that the Russian banks are unlikely to suffer the same problems affecting banks in the West as a result of the sub-prime lending situation.
While there are differing opinions on President Putin's stance towards the international community, the likelihood of a smooth transition of the Presidency to his favoured successor, Dmitry Medvedev, and Mr Medvedev's statement that he will appoint Mr Putin as Prime Minister, could be seen as providing some stability. The proposed transition has reportedly been widely supported by the general public, business leaders and the political elite.
Turning to oil, the price of a barrel of crude has risen to a record USD101.70 as a weakening dollar has encouraged investors to buy commodities priced in the currency.
Looking at currencies, the dollar has fallen to USD1.5055 per euro on speculation that the Federal Reserve Chairman, Ben Bernanke, will indicate that the US central bank is prepared to cut interest rates that are already at a three-year low. The dollar is now at its lowest against the euro since the European single currency was introduced in 1999.
As the debate on the outlook for the world's economies continues, make sure you speak to your Account Executive to find out how you can use Hansard's innovative protected funds when structuring and reviewing client portfolios.
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