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HSBC Expects Global Slowdown in 2001
HSBC Asset Management, a member of the banking giant HSBC group, said Wednesday that the global economic growth is expected to slow sharply from 4.2 percent in 2000 to 2.1 percent in 2001, mainly led by the U.S. economy.
"We expect the US economy to experience a significant slowdown in the first half of 2001, with annualized gross domestic product growth in the range of zero to 2 percent," Bryce McDonnell, global chief investment officer of the company, said at its annual investment seminar.
"This slowdown in U.S. economic growth will have an impact on a number of other economies. However, a U.S. recession should be narrowly avoided, with the economy anticipated to begin picking up in the second half of the year as a result of expected monetary and fiscal policy easing," he said.
McDonnell added that the U.S. economic slowdown is expected to adversely affect countries and regions whose business cycles are closely linked to the U.S., including Canada, Latin America and Asia except Japan.
For Hong Kong, the company expected to see a somewhat below trend GDP growth of around 3.5 percent, following the vigorous export-led recovery seen in 2000.
McDonnell said he did not believe that inflation would pose a constraint to monetary easing in the U.S. or other G7 economies, saying "while headline inflation has deteriorated due to the energy price increase, we believe underlying inflationary pressures will remain very muted."
"As a result, we expect interest rates for most G7 economies to continue to fall in the near term. For the U.S., we expect the U.S. Federal Reserve to cut interest rates by at least 75 basis points during the remainder of 2001," he said.
The investment expert said the technology sector would remain a key component in global investments, with technology stocks possibly becoming the most interesting equity investment opportunity in the medium term.
"Valuation for technology hardware and software companies are looking attractive after the recent market corrections. A number of telecommunications companies whose share prices have been beaten down now represent interesting investment opportunities," he said.
"The core issue for technology, multimedia and telecommunications stocks is their visibility of earnings, given the obvious inventory and sales difficulties they currently confront," he said.
"Overall, our view is that technology stock prices will stabilize during the next three to six months before moving higher as profitability improves and technology capital spending starts to pick up," McDonnell said.
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