July 11, 2010

Prudential Outlook Says Global Economy Is Solid, With Tightening to Come

Report says second half will slow down somewhat

With numbers trending lower, Prudential International Investments Advisers' global economic outlook for Q2 2010 is for solid growth, with the second half of 2010 slower and rate tightening expected to continue into 2011.

Citing strong U.S. business confidence along with slipping numbers, the outlook, written by John Praveen, chief investment strategist with Prudential International, a unit of Prudential Financial, expects a strong, if lower, economic growth showing for Q2 because of, among other reasons, improved consumer spending that moved upward in May from April's soft start and home sales and housing starts, stronger in April than May thanks to the now-expired housing tax credit.

Japan is also showing solid growth, with the Eurozone and UK on track to improved growth in Q2. The German GDP is expected to improve in Q2, with strong German industrial production and new orders driving growth. Spain, Portugal, and Ireland are showing GDP growth tracking over 2%. Inflation in developed countries is low and expected to remain well below 1%, while emerging economies are seeing more inflation, particularly China; India and other countries are also feeling its bite.

The second-half outlook is cautious, with U.S. interest rates left unchanged and expected to remain so until 2011. Emerging countries, however, seeing more growth, have in some instances raised interest rates: Taiwan, India, and Brazil have all raised rates; the People's Bank of China hiked its required reserve ratio in May for the third time, although it is currently on hold.

Inflation is trending lower, with pressure on core prices from sustained slowing hourly labor costs, housing weakness, and a falling-off of some trends that drove goods prices higher in 2009.

The euro has trended lower against the dollar, with further weakening expected whether the European debt crisis is resolved or not; if it is, because of the ECB monetizing the debt says the outlook, the euro is likely to weaken due to expansion in the ECB balance sheet. Otherwise it is expected to weaken due to a weaker macro outlook.

Read a story about Prudential Financial's Q1 results from the archives of InvestmentAdvisor.com.

Reprints Discuss this story
This is where the comments go.