The global economy is headed towards a period of sluggish growth – and possibly a mild recession, which will mean a tough investing environment, economists said on Tuesday.
At the Portfolio Management Association of Canada’s annual conference in Toronto, economists said the biggest threat to the Canadian economy is weakness in the global economy. Eric Lascelles, chief economist at RBC Global Asset Management, said that most leading economic indicators are showing weakness, but aren’t necessarily pointing to a recession.
“Most of the indicators are telling you that this is a below normal growth rate…and yet it doesn’t seem to be entirely recessionary,” said Lascelles. “I still wouldn’t rule out the possibility of a recession over the span of the next year, but we don’t seem to be there right now.”
Regardless of whether a recession takes place, it will be a challenging couple of years for investors, Lascelles said.
“Whether it’s sluggish growth or a mild recession, it’s a pretty similar investing environment of very low yields and slow corporate profit growth,” he said. “It’s not the place you’d like to be.”
The eurozone poses the biggest threat to the world economy, according to Ethan Harris, head of North American economics at the Bank of America, Merrill Lynch.
“We think a recession in Europe is now inevitable,” he said.
While policymakers are working hard to resolve the fiscal problems in Greece, Italy and other countries in the eurozone, Harris said more decisive action needs to take place to restore investor confidence.
“They’re making a real effort, but it’s a really dangerous situation in Europe,” said Harris. “I don’t think there’s a good outcome for Europe. I think there’s bad and ugly.”
The U.S. also presents a weak spot in the global economy, the economists said. The key to a solid recovery in the U.S. economy is the housing sector, according to Harris.
“Housing started the crisis and housing will mark the end of the crisis,” he said.
But a recovery is housing appears unlikely to occur anytime soon, according to Harris. He said there is currently too much inventory in the U.S. housing market for a stable recovery to take place, with approximately 18 months worth of supply.
Furthermore, the debt woes in the United States are likely to continue for the next couple of years, the panelists said, noting that many of the tough fiscal decisions will not be made until after the next presidential election.
“It looks like we are not getting any complete fix for quite a while,” Lascelles said. “2013 is your best bet.”