Aberdeen Asset Management has warned that the global recovery could run out of steam by the end of the year.
In its July 2010 Global Property Market Outlook report, the Stockholm-based firm noted that on the positive side, property presented long-term investors with an inflation hedge, and that overall it expected a firm global recovery in the next three to six months. However, it goes on to warn that this will be followed by a “softening” by the end of the year and into the first half of 2011.
A number of factors will conspire to weaken the economic climate, such as the unwinding of emergency fiscal stimulus and an outright tightening of policy thus depressing economic activity, particularly in Europe.
“Prior to the eruption of the European sovereign debt crisis, financial conditions had improved markedly against the benchmark of early 2009. However, fears over the Greek debt crisis spreading to other southern European economies and the European banking sector as a whole, has sharply curtailed risk taking activity in all regions,” said Aberdeen.
The worrisome predictions are contained in a document that also stated the strongest return projections were to be found in Asia – just as Aberdeen insisted six months ago in a similar report.
“In Asia, most countries will be more hesitant to raise interest rates significantly this year, which could actually risk stoking a boom in asset prices in the short-run. Emerging markets will not be immune to slowing growth in advanced economies, due to negative effects via weaker global trade, and linkages in the financial markets through capital market flows. Nonetheless, we expect growth to be at, or above, trend in 2010 and 2011,” it predicts.
That said, Aberdeen does not discount the US as a region presenting healthy return opportunities. It pointed out that capital values were recovering off a particularly low base as values had fallen 40-45 percent over the past two years, one of the most pronounced falls on a global basis. The US also promises stronger economic growth than in Europe.
When it comes to Europe, Aberdeen picked the UK, Nordic economies and France as heralding the strongest returns. The weakest performers in terms of projected returns were Greece, Portugal, Italy, Romania, Croatia and Hungary, hindered by weak economic growth rates, high and rising government debt and modest investment demand. “Although continental Europe offers some of the weakest returns on a global basis, it is substantially less volatile,” the report added on a positive note.