Thomas Trauth, Blue Horizon Wealth Partner AG (Foto: Blue Horizon).
Zurich – US economy digested the fiscal drag in the first half of 2013 and is steering towards real GDP growth of 2%. The expected growth will not be sufficient to reduce overcapacity in a meaningful way. Similarly progress in the labor market has not been sufficient to lower the unemployment rate to acceptable levels. In Europe too leading indicators improved somewhat, e.g. the Markit Eurozone PMI index rose above 50 for the first time since January 2012. A PMI level above 50 indicates that the economy is growing.
The PMI rose for the fourth successive month, up from 48.7 in June to 50.4. This is consistent with initial signs of economic stabilization in Europe. China’s growth continues to slow down, but a collapse is unlikely in our view. In general, we observe that growth in emerging markets slowed significantly. Major reasons are lower commodity demand, especially from China and drying capital flows, since among other things risk reward in developed equity markets looked more attractive. In addition, rising inflation and wage pressure has depressed corporate earnings and led some central banks to become more hawkish or even to tighten monetary policy. Examples are India, Indonesia, Turkey, Brazil, and China.
Growth gap between the US and Europe will remain for the foreseeable future
We expect Fed monetary tapering to begin later this year. In our view the Fed has willingly and successfully steered markets towards higher yield levels and has started to prepare markets for the coming withdrawal from ultraexpansionary monetary policy. Since the Fed’s exit from quantitative easing will be a gradual and rather cautious process accompanied by stronger economic growth, we expect market adjustments to happen in a more or less orderly manner. However, as the May-June sell off demonstrated, financial markets will act nervously at times and tend to overshoot on certain news. We believe that the growth gap between the US and Europe will remain for the foreseeable future. It is not yet clear, but will prove to be very important, whether the emerging markets – most notably China – will be able to regain positive growth dynamics or slow down even further. We consider the growth risk for emerging markets as one of the major risk factors for global growth and financial markets. (BH/mc/hfu)