Mid-Year Global Economic Update: Where to Invest with Recovery in Sight

Riccardo Barbieri, Head of International Economics, Global Rates & Currency Research, Banc of America Securities-Merrill Lynch Research, offers a mid-year progress report on the state of the global economy.

The global economy is recovering at a faster rate than expected, according to the latest figures released by Banc of America Securities-Merrill Lynch Research. "The recession has lost intensity as we approach the end of the second quarter," says Riccardo Barbieri, Head of International Economics, Global Rates & Currency Research. In a report titled "A More Optimistic GDP Forecast," he predicts a rise in global GDP to 3.7% in 2010, from the previously anticipated 3.2%. "The numbers tell us there is a good chance that the economy will stabilize in the third quarter. We could even get a modest increase in real GDP by then."

The report credits aggressive fiscal stimulus and global government policy initiatives as the main drivers of recovery around the world. Leading the way are the United States, with GDP forecast to increase to 2.6% from 1.8% next year, and China, whose growth is predicted to rise to 9.6% from its current 8.3% next year. The emerging markets, in particular, show strong growth potential. While the report anticipates that China and India will continue to outperform this year and next, a new development is the optimistic outlook for other Asian economies, such as Taiwan, Korea and Malaysia, which supply components to the Chinese production machine. Among Latin American countries, Brazil shows great promise, with an anticipated growth rate of 4.5% in 2010.

The report also highlights several investment opportunities that align with current trends, including inflation-linked bonds and equities in sectors, such as infrastructure and alternative energy, that are poised to benefit from fiscal stimulus. The financial services and auto industries, too, may stand to benefit in the mid to long term from the consolidation they are undergoing.

One silver lining of the recession — and the regulatory changes it has spurred: "Some sectors will become less prone to boom-and-bust cycles. They will deliver longer and more sustainable growth," says Barbieri.