In looking at the broad landscape, the global economy continues to grow moderately. The U.S. appears to be rebounding mildly from a weak summer, driven by housing and the consumer while being held back by a slowing manufacturing sector impacted by a recession in Europe, slower growth in emerging markets and the failure of U.S. political leadership on the budget.

If you’re inclined to see the glass as half full, you’ll likely note the early strengthening of foundations in peripheral European countries that were previously deteriorating (with emphasis on “early”). You’ll also sense gradual stimulus in China after its change in leadership and improvement in other emerging markets. And you’ll detect, perhaps, a faint but audible improved tone to the dialogue between Republicans and Democrats in the U.S.

Tony Caxide

North America

Tony M. Caxide, CFA®

Chairman - Senior Investment Council

We continue to see a better-than-even chance that the U.S. will again start to fulfill its role as locomotive to the world – a part it has not played in years. But it will be a slow tug. Housing is roaring at an over 20% pace of growth. The consumer remains OK, although some sectors, like autos, are quite strong, driven by an aged auto fleet. Deleveraging of the private sector is much further along than most investors appreciate, which also helps establish a foundation for growth from long-delayed pent-up demand.

However, manufacturing is being buffeted by recessionary conditions in Europe and weakness elsewhere, as well as delayed business investment and hiring plans. And fiscal policy will likely become restrictive no matter what agreement is reached in Washington.

Jeffrey G, Wilkins


Jeffrey G. Wilkins,

Deputy Chief Investment Officer

Japan’s economy appears on the verge of recession. After a preliminary third-quarter GDP of -3.5%, recent data on exports, industrial production, machine tool orders and PMI index all suggest the economy is likely getting worse. Compounding matters is an ongoing dispute with China over islands in oil-rich waters, which continues to negatively impact the relationship with Japan’s major trading partner. In exchange for a spending bill, Prime Minister Noda has called for new elections. But regardless of the coalition that ultimately ends up in power, there is no certainty that the historically independent Central Bank will meaningfully loosen monetary policy to stimulate growth, fix persistent deflation and weaken the yen further.


Jeffrey G. Wilkins,

Deputy Chief Investment Officer

Greece is back in the headlines as it negotiates another tranche of financial aid from the euro zone and the IMF. Greece remains an example of both sovereign financial imbalances as well as efforts throughout the euro zone to correct the debt and budget issues that currently plague the region. With demand in the euro zone weak, the U.S. experiencing positive but slow growth, and emerging markets working on stoking their economies, the largest economy and export engine of Europe – Germany – is also facing slower growth.

Third-quarter GDP for the euro zone fell -0.4% at an annual rate – a recessionary level. Only a zero growth rate in the first quarter of 2012 prevented this from being the fourth successive quarter of negative GDP growth. Since the ECB announced its plans to buy bonds, yields fortunately remain below their peaks while equity markets remain below the highs established prior to their late spring/early summer fade.


Jeff (Shengde) Liu, CFA®

Managing Director, Portfolio Management

There was a moment of excitement when the UK economy exited from double-dip recession in the third quarter. The growth surge reflects a boost from the Olympics and a rebound from the second quarter, when GDP was dragged down by the Queen’s Jubilee holiday. So far, major economic data are still looking good. Unemployment is down to 7.8%, real wages are up, the housing market is improving, as are housing prices, as demand from buyers increased at its fastest pace since 2009.

However, the economic recovery remains threatened by the continued crisis in the euro area, cooling global growth, and now the uncertainty caused by the fiscal cliff debate in the U.S. Some more forward-looking data have slowed in recent months, keeping us cautious on UK’s growth prospects.

Emerging Markets

Jeff (Shengde) Liu, CFA®

Managing Director, Portfolio Management

More and more emerging economies are turning in the right direction, albeit gradually. Recent data showed China’s growth may be improving. The newly bestowed leadership may carry out more stimulus plans, while very modest inflation means prices won’t play a significant role in decision making. Brazil’s growth continued to look stronger, although personal debt and inflation are still concerns. Indonesia and Mexico both have attractive fundamentals, including resilient and strong economic growth, anchored inflation and consistent fiscal disciplines. They continue to be the best performing EM economies against the euro area crisis and cooling global growth. On the other hand, India and South Africa are still in trouble – both experiencing slow growth while continuing to endure spells of inflation.