RTTNews - Wachovia released its global economic outlook Tuesday, in which it predicted that business conditions in the US would remain challenging for the next few years, while economic contraction in many foreign markets is likely to slow.
According to Wachovia, the credit crunch has caused the US to enter its deepest recession in decades. As a result, business conditions will likely remain challenging for the next few years as consumers retrench.
It also stated that while major foreign economies are in deep recessions, the rates of contraction in those countries may be starting to slow.
Wachovia also predicted that the Federal Reserve is done cutting rates, and noted that the unorthodox programs which it has implemented seem to have shored up the financial system.
The Fed has taken unprecedented steps to restore the financial system, including cutting its key interest rate to near zero and stress testing the 19 largest US banks.
Stating that central banks in major foreign countries have also responded by slashing rates, Wachovia said that inflation should recede in most countries, which will give central banks in developing countries scope to ease policy as well.
The stock market should stabilize, Wachovia added, as credit markets start to function again and risk aversion abates.
However, despite the recent rally in equity markets, Wachovia did not believe sustained gains are likely until the longevity of the global recession can be better assessed.
Additionally, Wachovia said it believes the global downturn means that most commodity prices should not shoot up again in the foreseeable future.
Finally, Wachovia said that the US dollar has rallied since last summer as other major economies have slipped in to recession, therefore Wachovia projects that the dollar will appreciate further in the near term.
However, the sluggish US economic recovery does not seem conducive for sustained dollar appreciation, therefore the dollar could reverse direction later this year or early next year.
The steam has come out of the dollar of late, with the greenback falling to multi-month lows against the sterling and others.
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