Global Recovery Underway Faster Than Predicted

09.02.10

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At last the global downturn seems to have turned a corner as official figures indicate that the global economy is recovering faster than previously anticipated. This could be a good time to revie

At last the global downturn seems to have turned a corner as official figures indicate that the global economy is recovering faster than previously anticipated. This could be a good time to review your investments to see if they are ideally placed to make the most out of the situation.

In its World Economic Forecast, published on 26th January, the International Monetary Fund (IMF) said that the world economy is bouncing back from negative territory in 2009, forecasting 3.9% growth this year and 4.3% in 2011. It represented an upward revision of its earlier forecast for global growth by 0.75% from the October 2009 forecast.

The IMF cautions the recovery is proceeding at different speeds around the world with emerging markets, led by Asia, showing relatively vigorous growth while advanced economies remained sluggish and dependent on government stimulus measures. It advised that countries should maintain stimulus measures to support the recovery for the time being. IMF managing director, Dominique Strauss-Kahn, has warned countries risk a return to recession if anti-crisis measures are withdrawn too soon.

In its Global Financial Stability Report released on the same day, the IMF said that financial markets have rebounded since the lows of last March, the result of improving economic conditions and wide-ranging policy actions by governments.

Director of the IMF?s Monetary and Capital Markets Department, Jose Vi?ls, said: ?Notwithstanding the recent sell-off, risk appetite has returned, equity markets have improved, and capital markets have reopened.?

Some other IMF?s projections for the next two years are:

Advanced economies: 2010 – 2.1%; 2011 – 2.4%

United States: 2010 – 2.7%; 2011- 2.4%

Eurozone: 2010 – 1%; 2011 – 1.6%

United Kingdom: 2010 – 1.3%; 2011 – 2.7%

Emerging market and developing economies: 2010 – 6%; 2011 – 6.3%

China: 2010 -10%; 2011 – 9.7%

India: 2010 – 7.7%; 2011 – 7.8%

Russia: 2010 – 3.6%; 2011 – 3.4%

Brazil: 2010 – 4.7%; 2011 – 3.7%

Mexico: 2010 – 4%; 2011 – 4.7%

In the last quarter of 2009 the US economy grew at an annualised rate of 5.7%, its fastest pace in six years, according to statistics from the US Commerce Department. It was twice more than the 2.2% in the third quarter and more than the 4.7% predicted by economists. It was the second consecutive quarter to show positive growth after four consecutive quarters of negative growth.

UK exits recession

The UK was the last of the G7 economies to exit recession with a growth of 0.1% in the fourth quarter of 2009, according to the Office for National Statistics? (ONS) preliminary estimate. It was the first upward movement following six consecutive quarters of decline. The small improvement led analysts to predict a possible dip back into recession before a more permanent recovery. However, the Chancellor of the Exchequer, Alistair Darling, remained steadfast in his prediction of between 1% and 1.5% growth this year.

The ONS said that the largest contributor to the growth was distribution, hotels and restaurants which increased by 0.4%. Government and other services and total production also had significant contributions to the increase. The production industries increased 0.1%, manufacturing increased 0.4% and mining and quarrying increased 1.0%.

The ONS? peliminary estimates are produced with approximately 40% of the available data and are usually revised. Goldman Sachs had predicted 0.7% growth for the same period, believing that the economy had left recession in mid -2009. The bank was sure that the ONS? figures would be revised upwards.

A survey of manufacturers from the Chartered Institute of Purchasing and Supply (CIPS) and Markit Economics, climbed 56.7 in January, (up from 54.6 in December) the highest since October 2004. Chief executive at CIPS, David Noble, commented. ?This is very positive news and a great way to start the year. It suggests we are coming out of recession much quicker than previously feared.?

There was confidence growing in the housing market as a survey by property website Rightmove showed that 53% of Britons believe house prices will rise this year, compared with 10% at the same time last year. The company said that the difference was significant because positive price sentiment played a major role in any housing market recovery and was an encouraging indication of how prices might perform.

Nationwide said that house prices made a strong start to 2010 by rising1.2% in January, an increase of 8.6% since January 2009, putting up the average cost of a home in the UK to ?163,481. It added that unless there was a fall in property values in February annual house price inflation is likely to move into double digit territory for the first time since May 2007.

Economist Roger Bootle, wrote in the latest Deloitte Economic Review that the UK could return to being a ?relative outperformer? after a difficult next few years. ?There is still everything to play for. The UK bounced back after both the 1980s and 1990s recessions and went on to more than make up for the ground lost during these desperate periods. My money is on the UK staging a third national resurgence.?

At its February monetary policy meeting, the Bank of England decided to maintain the interest rate at 0.5% and agreed to put on hold its programme of quantitative easing.

Investors will be pleased to hear that recovery is on the way but bear in mind the importance of diversification in your portfolio allocation. For example, Britons have a tendency to buy mainly UK shares but you will need a mix of countries and sectors to benefit from the recovery as it progresses in different global areas. Take advice from a wealth preservation and financial adviser such as Blevins Franks Financial Management.

By Bill Blevins, Managing Director, Blevins Franks

4th February 2010

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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