BofA Merrill Lynch Global Research has released its "Global Macro Year Ahead" economic and market forecasts, projecting higher-than-consensus GDP growth, low inflation, a bullish outlook for equities, a strengthening U.S. dollar against select currencies and a less attractive outlook for government and corporate bonds.
“We believe the global economy will gather momentum in 2010,” says Ethan Harris, head of North America economics and coordinator of global economics. “We think that the unprecedented mix of near-zero interest rates and high budget deficits will engineer an economic recovery that is real and sustainable. We aren’t forecasting a swift return to robust growth. In fact, the recovery will likely lag behind those of previous recessions – but we believe that the world economy will perform far better than the economic consensus would indicate.”
The BofA Merrill Lynch Global Economics Research team forecasts global GDP growth to be 4.4% in 2010, well above the 3.1% predicted by the International Monetary Fund. The team projects growth will be led by China at 10.1%, while projecting U.S. GDP growth to be 3.2%.
Harris expects a further fall in core inflation and projects that the U.S. Consumer Price Index will be 2.5%. He feels that the transmission process whereby monetary easing leads to rising prices is currently “stuck in neutral” as banks are rebuilding there balance sheets. He also believes that
central banks will have plenty of time to sop up liquidity before inflation becomes a real issue.
Meanwhile, Michael Hartnett, chief global equity strategist and chairman of the BofA Merrill Lynch Research Investment Committee, is targeting the MSCI All-Country World Index at 350, roughly a 20% upside and is bullish on European equities, Asia and emerging markets.
“Despite reassuring market strength, 2009 ultimately played out as a year of contradictions,” says Hartnett. “While credit markets, commodities and stocks surged, many investors stayed on the sidelines, awaiting surer signs of recovery. The coming months will reveal whether investors can move forward with confidence or whether a policy misstep will interrupt the slow and steady recovery we think is possible.”
Steven Pearson, head of G10 currency strategy, forecasts the US dollar to strengthen against G10 currencies next year, primarily against the euro. However, over the first half of 2010, he expects the Japanese yen to rise further against both the US dollar and the Euro.
Investment Themes for 2010
Meanwhile, in the recently published December RIC Report, the BofA Merrill Lynch Research Investment Committee identifies 10 key themes that the bank’s clients should be positioned for in 2010.
The themes are: government balance sheet risk; rising taxation; alternative dividend yield strategies; financial sector rehabilitation; corporate cash flow beneficiaries; rising global growth; the emerging market consumer; commodity price inflation alternative energy; and the return of active management.