The threat of a double-dip recession in the United States is gone, European debt is a long-term issue that is gradually being resolved, and a possible slowdown in Chinese growth will have an effect on local markets, according to BT Financial chief economist Dr Chris Caton.
“A year ago I would have said that there are three big worries out there: there is the possibility of a double-dip recession in the United States, there is a possibility of a slowdown in China, and there is eurozone debt,” said Caton in an address to the 2012 Investment Administration Conference.
“I think we can get rid of one of them – the threat of a double recession in the US is not going to happen. In fact, in recent times, the US market has been doing better than people expected.”
Caton explained that in the three years after the housing bubble burst in 2008, housing start-ups fell by 80 per cent. He is adamant, however, that the US housing market is showing signs of life and will not fall as low as it has since the global financial crisis.
He paints a similar picture for the Australian share market, which he said remains “quite cheap”. Despite this, he believes Australia should experience strong growth in the period ahead, led by mining investment and the chance of a falling cash rate.
Whether or not there is a slowdown in Chinese growth, Caton believes the Australian economy will not be able to rely so much on the “kindness of strangers” in the form of rising commodity prices as it has done in the past.
He added that developed markets like Australia needed to pay more attention to India, which is now the fastest growing emerging market in the world.
In regards to the debt situation affecting Europe, government bond rates have been pushed down significantly in recent times, but the zone is on a steady course for recovery, Caton believes.
“Nothing the European Central Bank has done has fixed the problem, but it has provided liquidity to the banking system and it has enabled them to continue to participate in the government bond market – it has bought them time,” Caton said.
Caton’s economic forecast comes after BT Financial Group ran a one-off television campaign in an effort to reassure investors after global share markets began to record dismal results during August last year.
