Higher oil prices will be offset by the recovery in the labour markets. The positive prospects for the global economy should lead to an interest rate hike in the second quarter of 2011, however, and squeeze corporate bonds prices. The equity markets are expected to resume their upward trend on the back of positive growth momentum in the industrialised countries.
Bank Sarasin believes European equities have great potential. Also, commodities are still in demand thanks to the positive global economic development. However, the Swiss franc is expected to weaken soon.
The US dollar will demonstrate recovery potential as soon as the Federal Reserve signals an end to its extremely relaxed monetary policy. Despite many uncertainties, the conditions for risky assets remain positive. Whereas growth in emerging markets will slow slightly, it will gradually gain momentum in industrialised countries.
After the floods in Australia, the earthquake in New Zealand and snowstorms in the USA, the spate of natural disasters culminated in an earthquake in Japan that unleashed a tsunami and caused an accident at the Fukushima nuclear power plant, which released radioactivity and radiation.
However, these devastating natural catastrophes have had a minimum impact on the global economy because the labour market recovery has been so significant. It has translated into solid growth rates, especially in industrialised countries. Also when the US Federal Reserve opened the monetary flood gates and new fiscal policy stimuli were implemented, the mood of industry dramatically changed. On the other hand, dampening growth to achieve price stability without causing a hard landing in China is the greatest challenge the Chinese government faces.
In EU countries, public attention mainly focuses on countries like Portugal, Spain and Greece; however, it is core Europe that determines strong growth. The Swiss economy is also performing well, despite the strong Swiss franc, which is partly due to the continuing strong growth in consumption and the booming construction sector.
“The force of the upswing after the deepest recession in 80 years has surpassed all expectations. Nonetheless, it is becoming increasingly clear that the global economy needs to be put on a more consistent but lower growth trajectory after another year of exuberant growth. However, central banks in industrialised countries do not want to run the risk of exposing their economies to new shocks,” said Jan Amrit Poser, Head of Research and Chief Economist at Bank Sarasin.
Paradoxically, the big Persian Gulf states stand to profit from the political unrest in North Africa. The continuing rise in oil prices will generate a spectacular amount of additional revenue for the Gulf states. On the other hand, the performance of the services industry, especially the financial sector and tourism, which the Gulf states have turned into a second mainstay in recent years, will differ greatly.
Dubai is likely to emerge as the regional beneficiary of the crisis. Dubai suffered for a long time under the excesses of the boom years and the lack of financial transparency in many of its major property projects. The huge windfall from higher oil prices is boosting the medium term economic prospects of the United Arab Emirates.