Ashburton Makes Predictions For US Investment Outlook

by Philip Morton, Investors Offshore.com

15 January 2004

Jersey-based international investment manager, Ashburton on Monday released its predictions for the US economy, and investment prospects over the coming year.

Although the majority of observers believe that US inflation and interest rates are likely to remain low and stable for a long period, Ashburton is far from convinced, according to Peter Lucas, the firm's global investment strategist.

"There are many analysts and policymakers who seem to believe that the negative output gap remains large in the US and it will be some time before inflation is a problem. This conclusion is based to some extent on the apparently high level of spare capacity in the manufacturing sector," he explained, continuing:

"However, given that manufacturing now constitutes a relatively small part of what is now predominantly a service-dominated US economy, this may be a dangerous assumption to make. Our own analysis suggests that the negative output gap may actually be quite small."

Warning that Asia is unlikely to be the "benign inflationary influence" that is has been of recent years, Mr Lucas concluded:

"If inflation does start to rise, Alan Greenspan will have a major decision to make. Does he raise rates to control inflation and run the risk that the economy relapses back into deflation or does he leave interest rates low and run the risk that 70s style inflation takes hold? The answer to this question will determine how the financial markets behave not just in 2004 but for many years to come."

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