Prospects are improving for a positive albeit gradual turn next year in global economic and investment conditions, according to the BlackRock
Investment Institute’s 2013 investment outlook
, released today and entitled: “Slow Turn Ahead?”
Investors need to keep a close eye on the impact of government policy – first and foremost, the urgent effort to avoid the looming “fiscal cliff” in the US, which will drive the direction of both the US and global economies in 2013, according to the BlackRock Investment Institute (BII).
“Our big questions for 2013 are whether the wave of ultra-loose monetary policies and quantitative easing has crested and if private sector credit can stage a modest recovery,” said Ewen Cameron Watt, BII’s Chief Investment Strategist. “Trillions of dollars in monetary stimulus and record low interest rates have failed to spur much credit growth and economic activity so far. But what if this changes?”
“Policy - fiscal, monetary and regulatory - drove markets in 2012 and will remain central to 2013 outcomes,” he said.
With global central banks apparently refocusing monetary stimulus away from preventing a financial sector collapse and toward targeting economic growth, next steps by the US Federal Reserve will merit particularly close attention, according to the report.
“We do not expect the Fed to raise rates any time soon. But it could take its foot off the monetary accelerator on signs of quickening job growth in the second half of 2013,” Cameron Watt noted. “Markets need only a whiff of a Fed preparing to slow its QE programs because of improving employment to empty some of the vast store of investor money in cash and low-yielding fixed income assets, and put it into equities.”
Yet, in the US, much hinges on efforts to avoid the fiscal cliff, a set of tax hikes and spending cuts set to go into effect Jan. 1. "The United States may turn the corner on growth -– if Washington can avoid falling off the fiscal cliff and negotiate a long-term budget reduction plan,” according to the report.