The global economy has bottomed, says Dr Prieur du Plessis, Plexus group chairman. There is definite evidence of expansion in both the manufacturing and non- manufacturing sectors and all indications are that this is likely to continue, at least for the next few months.

The US economy

The recession in the US has officially ended with positive quarter-on-quarter growth being reported in the third quarter. However, the outlook for the US economy remains rather subdued as the US consumer remains under siege. Unemployment continues to rise, but indications are that the shedding of jobs has slowed significantly. Although consumer sentiment remains weak, the significant rise in equity prices is expected to lead to a gradual improvement in the coming months if equity prices hold onto their gains since bottoming early this year.

With the US CPI inflation rate expected to return to positive levels by December and with the Fed?s stated policy not to hike interest rates in the foreseeable future, the real federal funds rate is likely to turn negative despite positive economic growth. The change from a restrictive to a stimulatory monetary policy is likely to spur consumer spending, especially in the light of rising inflation expectations. This is expected to be the second leg of the upturn in the US economy. However, business investment, the third pillar of sustained economic growth, will remain absent for years to come and is likely to lead to a sub-par economic recovery.

The Japanese economy

In Japan deflation continues to be a major concern for the economy as consumers are more inclined to save than to spend. In the short term, however, GDP growth in Japan may surprise on the upside as positive year-on-year growth could emerge in the first quarter of next year.

The European, UK and Chinese economies

Europe and the UK have also turned the corner, but the economic situation remains fragile. On the positive side, China?s stimulus package to pull the economy out of a severe slump has had a major impact as the economy shifted gear in the third quarter, resulting in a V-shaped recovery. The prospects for next year have improved as the mild recoveries in the US and Eurozone are likely to increase the external demand for China?s goods.

The emerging economies

Given their dependence on the export of commodities the outlook for emerging economies in general continues to be more dependent on the development of especially the Chinese and the US economies than on internal fiscal and monetary policies. The significant recovery in commodity prices has alleviated the pressure on the commodity-exporting emerging economies. Current indications are that the upward trend in metal prices is likely to continue through end 2009.

Article continues on page two and three: the outlook for gold, equities, bonds and the South African economy...