The recent economic slowdown in the United States will have no serious effect on the rest of the world, says Didier Borovski, senior economist at Societe Generale Asset Management (SGAM).

Borovski gave a briefing on the bank’s view on the global economic outlook as part of the November 14 media launch, at Sofia’s Kempinski Hotel Zografski, of SGAM’s sub-funds in Bulgaria. SGAM is a sister company of SG Expressbank, and currently operates in 26 countries, with about 12.5 billion euro in assets currently under its management.

Borovski said that global growth had been very strong in the past few years, and US growth had been strong on the back of very dynamic household spending. However, since the beginning of 2006, housing prices in the US had started to slow, causing a slowdown in the American economy.

Borovski rejected suggestions that this would cause a recession in the US similar to that seen in the early 1990s. He said that the slowdown in the US remained limited to the housing sector, without spilling over into other areas of the economy. Despite the slowdown, the job market remained dynamic in the US, and this was the main factor explaining continuing household spending and was the main factor offsetting the slowdown in the housing market.

He said that there were market conditions in the US that were very accommodating for the economy. These included a surge in equity markets, the fact that oil prices had dropped in the past four months, and monetary policy.

“Internal demand in the US will remain strong and we will not see a recession in the US,” Borovski said.

Elsewhere in the world, while there had been slower growth in the US, growth was strong in Europe and Asia. European growth should remain sustained in spite of what was happening in the US, he said.

In spite of negative interpretations of the recent drop in Germany of business confidence, he said that this decline was off a high base.

There was also good news from Asia, where in Japan, the job market had rebounded, and elsewhere in Asia, demand was high.

“We believe that one should not over-react to what is happening in the US economy.”

Asian growth was rapidly gaining as a proportion of global growth, and this, along with growth in Europe, represented what Borovski termed a “rebalancing” of the world economy.

Addressing the question of monetary policy and economic activity, Borovski said: “We believe that the US federal reserve will only cut rates at a very moderate pace next year. It cannot start to cut rates as long as inflation remains too high”.

He said that inflation could be expected to slow next year, an opportunity for the federal reserve to cut rates at the end of the first quarter of 2007.

At the same time, inflation in the eurozone was too high and the European Central Bank would increase the key rate. The ECB would continue to raise its key rate next year. “We expect they will go to 3.5 per cent,” Borovski said.

As to global liquidity conditions, he said that real interest rates were low by historical standards.

A further important factor was that OPEC countries continued to recycle receipts by purchasing US dollar-denominated assets.

“Asian central banks will continue to accumulate reserves and OPEC countries will continue to recycle petrodollars by purchasing US dollar-denominated assets, so long-term interest rates will remain low, even though the ECB will continue to hike rates,” Borovski said.

He was optimistic that long-term interest rates would remain low.

Borovski said that, even if the profit cycle becomes lower, equity markets would continue to out-perform bond markets.

The US dollar would remain strong next year. Over three to five years, the dollar could depreciate, to bring stability in response to the country's high current account deficit.
“We do not believe that there is a major threat from foreign exchange markets in 2007. Global liquidity is strong, and will continue to sustain the US dollar.”

Julien Fedoriska, marketing director of Societe Generale Asset Management for Eastern Europe, gave a briefing on the five sub-funds being launched on the Bulgarian market.

The funds are Fund Equities Global Energy, Fund Equities Gold Mines, Fund Equities Eastern Europe, Fund Equities China, and Fund Equities Euroland Value.

The company says that the products are suited to a broad range of customers, including individuals, corporates and institutional investors. Different products are suited variously to experienced investors or to beginners. Each sub-fund represents a separate portfolio of assets and series of shares. Shares in any particular sub-fund are further divided into several classes, with different terms, conditions and availability for specified types of investors.