Eurozone instability “main risk to global recovery”, says Towers Watson
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The eurozone sovereign debt crisis is likely to be the biggest risk to the global economic recovery, according to a survey of fund managers’ expectations by Towers Watson.
The Towers Watson survey of 114 investment managers, managing $7.8 trillion (£5 trillion) for institutional investors and $1.9 trillion for retail investors, found that the region is an area for concern.
Carl Hess, global head of investment at Towers Watson, says: “Eurozone countries face highly political long-term structural reforms, as well as fiscal austerity, which will be a tremendous challenge to implement, pushing out further any real global recovery.
“Politics have become enmeshed in the financial world since the global economic crisis began and managers have justifiably identified this as the top issue for them.”
Fund managers also warn of some countries slipping back into recession, including the UK, and believe that Greece is the most likely country to default followed by Portugal, although contagion is unlikely.
Hess says the global economic recovery is “as elusive and fragile as ever”, adding: “The second half of 2011 was a reminder that these fundamentals hadn’t gone away and have clearly influenced managers’ outlooks for 2012.”
The survey of fund managers found that investors are less prepared to take risk during 2012, with respondents reducing the returns they expect to take from “risky assets”.
He adds: “A further indication of the change in sentiment from the past two years is their view that most economies are expected to have significantly lower growth in 2012 than they had expected in prior years.”
The survey also reveals more bullish views on the US and the expectation of a Japanese recovery, while warning of a slowdown in Chinese growth.
Hess says: “While there are some positive economic signals coming out of the US, driven largely by government policies such as tax incentives to help consumers and the Fed’s highly accommodative monetary policy, these cannot continue indefinitely.
“If the economy doesn’t develop some of its own momentum and unemployment doesn’t reduce, 2012 and 2013 could be very challenging particularly as much of the current stimuli would have run its course.
“The policies are clearly intended to stimulate growth and address the massive US fiscal deficit, however, they bring considerable political, and some inflationary, risk.”
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