Emerging US Slowdown Casts Shadow Over Global Economy

Posted 05 December 2006 @ 10:44 am EET     Print     Reprint     E-Mail     Comments

GENEVA (AP) - Switzerland's largest banking group, UBS, has said that the slowdown in the US economy will cast a shadow over global economic prospects in 2007, making financial markets more volatile.

"UBS analysts have been predicting a US slowdown for over a year, and this scenario is now materialising," the bank said in a media summary of its "Global outlook 2007".

Domestic demand in other major economies should continue to drive global growth in 2007 even though they will be affected by conditions in the United States, it added.

"Looking into 2007, UBS analysts expect slower US growth than most other economic forecasters," the statement said.

However, it gave no data.

Globally, "in this challenging economic environment, investors will become more aware of risks; any disappointing economic news, or political events may lead to temporary market corrections," UBS cautioned.

UBS analysts were expecting a "slightly rougher environment" in 2007 for booming Asian economies, but they "do not think the current slowdown in the US economy will derail the Asian economic train", the bank said.

UBS predicted "a temporary dampener" on economic growth in the eurozone, due to a combination of the situation in the United States and higher interest rates.

However, full year growth in eurozone gross domestic product (GDP) in 2006 was likely to be the strongest in six years and the conditions were otherwise conducive to a continuation of the upswing in 2007, it added.

UBS analysts were still committed to equities over bonds, saying: "the broad equity market should be able to withstand next year's tougher investment environment".

A series of unexpectedly weak reports on US manufacturing and GDP over the past week have prompted fresh debate on whether the US economic expansion can continue through 2007 or succumb to a downturn.