GLOBAL markets are set to recover but the euro, just above parity against the dollar in recent days, is expected to fall sharply against the US currency, according to a leading economist.
HBOS chief economist Adam Chester predicted an autumn Euro-zone interest from 3.25% to 3% and stressed the need for urgent reform of the EU Stability Pact. He said global equity markets were showing tentative signs of a recovery, adding that productivity growth in the United States bodes well for future corporate earnings. Mr Chester expects, however, a sharp weakening in the value of the euro against the dollar, with the euro falling from its current $1.01 to $0.92 by the end of 2003.
He pointed out the US economy has always been the locomotive behind global economic growth and added the current real level of US interest rates is very accommodative towards recovery. But Mr Chester was less optimistic about Euro-zone economies and said Germany is in danger of suffering a double-dip recession.
Germany is set to breach the 3% of Gross Domestic Product (GDP) borrowing limits set by the EU’s Stability Pact. Mr Chester said the Stability Pact needs urgent reform. “The Euro-zone is heavily reliant on world trade. Domestic demand in Europe remains stagnant and business confidence has fallen,” said Mr Chester, who added the European Central Bank (ECB) faces a serious dilemma. “Growth in the Euro-zone remains weak but inflation is still above the ECB’s targets,” he said. //www.examiner.ie