NEW YORK, Jan. 20, 2010 — Both developed and emerging market economies are expected to continue to recover from the global recession of the past two years, as the U.S. dollar recovers against other major currencies, share prices of global equities rise and the public perception of U.S. economic stimulus efforts remains underestimated said leading experts at the eighth annual Dow Jones Indexes Global Economic Outlook.
"Two years after the start of a severe worldwide recession, a rebound in global economic activity is clearly underway with industrial production and international trade flows rising briskly. By the middle of this year, estimates for global GDP growth in 2010 are likely to be double what they were in the middle of 2009," said Kevin Logan, an independent global economist. "Growth is likely to be unbalanced across the globe, with important consequences for capital markets and exchange rates. Europe and the United States will be hampered by the ongoing process of deleveraging, by still fragile financial systems and by the gradual withdrawal of policy stimulus. In consequence, we are likely to see persistent pressure on the exchange rate system to adjust to unbalanced growth, rising protectionism in trade, the growing possibility of deflation, rather than of inflation, in the advanced economies, and better returns on capital assets -direct investments and securities- in the emerging economies," he added.
"The U.S. dollar is expected to weaken against the major currencies through mid-year, and then rally back in the second half on higher interest rates," said Michael Woolfolk, senior currency strategist at BNY Mellon. "By mid-year, the U.S. Fed is expected to lead a coordinated round of monetary tightening among major central banks, which will allow the U.S. dollar to recover lost ground and rebuild its tarnished image. The higher U.S. interest rates rise in 2010, the higher the U.S. dollar is likely to gain against the major currencies. The Japanese yen and British pound are expected to be the worst performing major currencies this year, undermined by negative interest rate differentials and the weakest economic performance among the G7. By contrast, the Chinese yuan could be one of the best performing currencies as a rebound in global demand is expected to bolster Chinese exports, giving Chinese authorities room to relax foreign exchange controls."
"We are in a period towards the end of most global recessions when share prices rise even though profits are still falling. This twilight zone ends as the earnings recovery begins and this moment looks imminent," commented Robert Buckland, chief global equity strategist, Citi. "In these market conditions an aggressive pro-cyclical strategy tends to work best as global equities typically surge higher in the twilight zone and grind higher in the earnings recovery. We expect to see in a 10 per cent increase in major global stock market indexes."
"Congressional and administration pandering to this new populist fervor from the right has contributed to public underestimation of the success of Fed's lending and the Treasury's TARP program, and an overestimation of their costs to taxpayers," states Bob Mc Teer, fellow, macroeconomics at the National Center of Policy Analysis. "Instead, the Fed lending and the Treasury's support of banks have been successful and are likely to have zero cost to taxpayers. Nevertheless, false public perceptions are putting Chairman Bernanke's reappointment and Fed independence in jeopardy and are now being used as cover to justify the continued vilification of banks and the imposition of punitive taxes. On an international perspective, most commentaries on the U.S. dollar weakness are misinformed, as are questions regarding continued Chinese purchases of U.S. debt."
Disclaimer: Statements made by the speakers at this event, and summarized in this document, do not in any way reflect the opinion of Dow Jones Indexes, Dow Jones & Co. or News Corporation.
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