Dresdner Bank expects stable global economy in 2008
High oil prices slightly temper outlook for economic growth / International markets to remain volatile / Real estate crisis in USA will leave its mark
Dresdner Bank expects the global economy to continue performing stably in the coming year. However, there will be a slight braking effect from rising oil prices and problems in the financial markets. As in the second half of 2007, the capital markets will experience high volatility in the first few months of the year ahead.
Michael Heise, Chief Economist at Allianz and Dresdner Bank
German economy well positioned
"The intensifying real estate crisis is likely to create heavy weather for the US economy well into 2008. Its repercussions in the international capital and credit markets will also cast a cloud over the global economy," says Michael Heise, Chief Economist at Allianz and Dresdner Bank. After an expected rise of 3.5 percent (weighted for GDP) in global growth for 2007, Deutsche Bank expects a less vigorous increase of 3.2 percent for the global economy in 2008. The USA will grow at 2.0 percent in 2008, and the Euro Zone will grow 1.8 percent.
Heise believes the German economy is well positioned internationally, and will deal well with the slack phase in the US economy. At present, the greatest risk for the German economy is the high price of oil, which might yet again delay the barely incipient recovery of German consumer spending. Nevertheless, particularly because of the substantially better picture in the job market, Dresdner Bank expects consumer spending to become an economic driver in 2008. All in all, the German economy is likely to put in very solid growth in 2008, gaining 1.8 percent. The Bank expects growth of 2.5 percent for 2007.
Heise believes the German economy is well positioned internationally, and will deal well with the slack phase in the US economy. At present, the greatest risk for the German economy is the high price of oil, which might yet again delay the barely incipient recovery of German consumer spending. Nevertheless, particularly because of the substantially better picture in the job market, Dresdner Bank expects consumer spending to become an economic driver in 2008. All in all, the German economy is likely to put in very solid growth in 2008, gaining 1.8 percent. The Bank expects growth of 2.5 percent for 2007.
Stock markets: Substantial upside potential
Herbert Berger, who manages capital markets and retail banking, takes an optimistic outlook on the capital markets as a whole: "At first, rising risks and the expected slackening of the economy will affect the capital markets' performance. Nevertheless, we still foresee good opportunities for equities and commodities in the second half of 2008."
In all likelihood, the stock markets will build up substantial further potential only as the year advances. For now, no additional impetus can be expected from corporate profits. In the Euro Zone as well, the tendency toward greater cost pressure means that higher profit margins are unlikely for the time being. However, the US central bank will presumably continue its loosening cycle, and the European central bank will probably at least make no further increases in its key lending rates. "The expected pickup of the economy in the second half of 2008 should stabilize upside forces in the stock markets," said Berger.
In all likelihood, the stock markets will build up substantial further potential only as the year advances. For now, no additional impetus can be expected from corporate profits. In the Euro Zone as well, the tendency toward greater cost pressure means that higher profit margins are unlikely for the time being. However, the US central bank will presumably continue its loosening cycle, and the European central bank will probably at least make no further increases in its key lending rates. "The expected pickup of the economy in the second half of 2008 should stabilize upside forces in the stock markets," said Berger.
Bond markets: 2008 another tough year
The bond markets will have another tough year in 2008. The US economy has been walking a tightrope this winter half. Over the further course of the year, the growth outlook is likely to turn more positive again, especially moving into 2009. At that point, a substantial correction in US treasuries is likely, in the direction of 4.75 to 5 percent.
In Europe, yields on ten-year German government bonds will trend upward if the "flight to safety" finally abates. But EMU long-term rates are not likely to rise above 4.7 percent from their current roughly 4 percent..
In Europe, yields on ten-year German government bonds will trend upward if the "flight to safety" finally abates. But EMU long-term rates are not likely to rise above 4.7 percent from their current roughly 4 percent..
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