Europe won’t crash global GDP

All eyes are fixed on Europe as the Continent struggles to bring its collective debt under control. As bleak as it all looks, investors must recognize that the global economy is chugging along quite nicely. Tuning out the noise has never been more important.

“Twenty years ago, the ability to gather information was an advantage,” says Gary Lisenbee , CEO and CIO of Metropolitan West Capital Management, and sub advisor of the Renaissance U.S. Equity Value Fund. “Now, it’s the ability to sift through that wealth of information and focus on what’s important. Stock prices can be impacted in the short term by noise.”

He says Europe is heading into recession—if it isn’t already in one—and admits that this will drag on global GDP. But that drag will not be enough to stall the global economy; the more likely, Europe’s woes will shave anywhere between 50 and 100 basis points off of global GDP.

“Maybe growth goes from 3.8% to 3.2%. That’s the magnitude of the impact we expect from Europe,” he says.

The market recognizes the problems in Europe, but also recognizes the growth potential offered by Asia, Latin America and even the U.S.

“The U.S. is starting to see a rebound, although it’s anemic coming off the type of recession we had,” he says. Typically the U.S. would be posting growth rates between 4% and 6% at this stage of a recovery, but this time around 2% is all it can manage.

“Not very long ago, many pundits were talking about a double-dip recession here in the U.S., and certainly that isn’t the case at this point in time,” he says. “We have to keep in mind that its an election year, and there are a lot of moving parts that could impact the market from the political or macro standpoint.”

He expects the U.S. market to post decent returns on the year of about 8% or 9%.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.