Invesco's Greenwood issues bleak economic outlook
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The outlook for the US, the eurozone, the UK and even emerging markets has grown increasingly bleak over recent months, Invesco Perpetual’s chief economist says.
In his latest quarterly economic outlook, John Greenwood says the risk of further recession in some of the world’s leading economies - including Germany, the UK and the US - has “increased significantly” over the summer.
The “bitter and protracted” negotiations over the US borrowing limit and the subsequent downgrade of the country’s credit rating by Standard & Poor’s was followed by a spate of weak macroeconomic data for areas such as employment and retail sales, he notes.
“The illusion of a strong recovery [in the US] has finally been shattered and the perception has grown that the authorities are powerless to prevent a double-dip,” the economist says.
Greenwood also argues that the Federal Reserve’s $400 billion (£258.2 billion) Operation Twist is “a highly dubious strategy”, as it fails to inject net new funds into the market and can be counteracted by private portfolio adjustments. He also claims a similar programme carried out between 1961 and 1964 was regarded as a failure by commentators.
Considering the eurozone, Greenwood predicts the bloc’s real GDP growth will slow to 1.6% this year - which conceals the wide divergence between slowing core members and a periphery that is stagnant or already contracting.
He singles out Germany - the eurozone’s largest economy - as “teetering on the brink of recession”, claiming this is evidenced by a steep decline in the country’s leading indicators and a recent fall in business confidence.
The UK’s plight is also highlighted by the economist, who says: “The economic outlook for the UK has darkened in recent months.”
Falling retail sales, weakness in both manufacturing and services, and the knock-on effects of the eurozone’s problems are holding back the UK economy, he says, while predicting that growth will be “disappointing” due to the government’s necessary balance sheet repair.
Greenwood adds that emerging markets have been able to sustain a relatively fast pace of growth when compared with the developed world, although the crises in the West are starting to impact on their export growth.
This suggests an “unavoidable slowdown” in the emerging world’s overall growth trajectory in the coming year, he argues.
“Despite a few small tentative steps towards decoupling, little was ever achieved. The emerging economies therefore remain tied to the fate of their developed trading partners.”
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