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Economy will remain challenged throughout 2010, says panel

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While global equity markets have slightly improved this year a full recovery of the markets and the economy is not expected any time soon, according to a panel hosted by Dow Jones Index

While global equity markets have slightly improved this year a full recovery of the markets and the economy is not expected any time soon, according to a panel hosted by Dow Jones Indexes.

The panel of economic and market experts said the economy will remain challenged throughout 2010 and recovery could be impacted by various factors and developments.

John Hawksworth, head of macroeconomics at PricewaterhouseCoopers, said: "Globalization was beneficial for both developed and especially emerging market economies over the decade to 2006. But the last two years have shown that globalization also has a dark side as it allowed the build-up of large global trade imbalances and corresponding capital flows from the East that help to inflate unsustainable credit and housing market bubbles in the West. Once the crisis hit in the US housing market initially, globalization of financial markets also meant that the credit crunch virus spread very rapidly around the world.’

Hawksworth expects a fall of around 2.5 per cent in world GDP in 2009 followed by a modest recovery to global growth of around one per cent in 2010, led by China and India. He is more cautious about the prospects for Europe, including the eurozone countries for which he projects a fall in GDP of more than four per cent in 2009 followed by continued negative GDP growth of around -0.5 per cent in 2010.

‘In the longer term, the need to deal with rapidly increasing public debt will weigh down on the speed of economic recovery in the US, the UK and other high deficit countries and could also dampen the return on government bonds relative to equities over the next few years," he said.

Brendan Bradley, global head of product strategy at Eurex, said there will be a long term trend towards global products. While volume in global contracts is still small, Eurex is seeing increasing assets under management in products such as global exchange-traded funds.

"We expect market participants to bi-laterally agree to deals that give global exposure and report the transaction to Eurex for clearing purposes, thereby mitigating the counterparty credit risk," he added.

Max King, portfolio manager and strategist at Investec Asset Management, believes emerging markets will do better than developed economies.

"This out-performance is not reflected in the asset allocation of the typical OECD-centric investment institution. However, we believe that a long equity up-cycle started earlier this year and that, over the next ten years, equities will out-perform government bonds by a wide margin, despite the continuing economic problems," he said.

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