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Many of us are probably hoping that the adage “Out with the old, in with the New” actually rings true when it comes to global finance in 2009.
And for those hoping for better times ahead there was a glimmer of hope last week as the world’s stock markets staged a rally. Unfortunately many think that the gains were a brief respite and not an indication of things to come.
So, what can we really expect when it comes to the global economies in 2009?
To begin with there will be a new United States President in the White House on January 20th 2009. And there are those who are hoping that this in itself will bring in a few changes.
We are told that President Elect Barack Obama intends to spend billions of dollars on an economic recovery plan which ‘will help save or create at least two and a half million jobs’, while rebuilding infrastructure, improving schools, reducing dependence on oil, and saving billions of dollars.
While this is all very well in theory there are still unanswered questions as to how this will be paid for and by whom. In addition, if the speed officials took to approve the bailout of the banking industry is anything to go by then an ‘infrastructure bailout’ could be a very long time in coming – even after Obama takes office.
With this in mind the overall message here is – when it comes to the economic recovery plan – ‘don’t count on it’. And especially don’t count on it as a quick fix for a whole host of underlying problems – including unemployment.
The unemployment rate in the United States rose to a 15 year high of 6.7% in October last year. A further 533,000 jobs were cut in November. And most pundits think that it will get worse before it gets better.
One can only imagine what effect unemployment will have on the global economy. Those who have lost their jobs will stop spending because they cannot afford to – and those who keep their jobs will stop spending because they are afraid to simply because they do not know what will happen next. As a result of this unemployment and uncertainty the global manufacturing industry will be adversely affected. And China will not escape unscathed.
There are those who pin their hopes on China with its previously impressive growth rate to keep the world economy moving. However, the talk is that China’s once revered double digit growth rate will be paired away. Some experts are predicting that growth will slow to 7.5% next year. Although many countries would welcome this growth rate right now – and in to the future – it could actually result in China experiencing socio-economic problems of its own.
Russia will also be affected. Russia’s Finance Minister Alexei Kudrin said last year that Russia was not in a recession. However, there are those who doubt his assessment. After all the Russian economy is heavily reliant upon oil prices which have fallen dramatically from their all time highs earlier this year of USD $147 per barrel. Oil – last week – was trading at about USD $46 per barrel .
So, with all this uncertainty on the horizon what is the ordinary man on the street expected to do with his savings and investments?
The likelihood is that ordinary investors may be attracted to infrastructure-related stocks especially in the short term. In fact some of these stocks have already seen a surge of late.
Others will go for traditional defensive stocks such as those of food, tobacco, pharmaceuticals and utility companies.
Others will look at dividend-yielding investments thinking that they will be paid to wait out the recession.
However, my advice – as always – is to take a measured approach and continue with a program of contributing to a regular investment plan that will help us achieve steady growth even in these periods of high uncertainty. Once again I recommend every one who wishes to grow their wealth to use the tried and true method of dollar cost averaging. Happy 2009!
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