- PARIS (Reuters) - High oil
prices and shaky consumer confidence after Hurricane Katrina could sharply
reduce U.S. economic growth by the end of next year, a strategist at UBS
Wealth Management said on Thursday.
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- Andreas Hofert, the firm's head of global investment
recommendations, also believes that a deceleration of property price rises
brought on by Federal Reserve tightening could erode consumption, the driver
of the world's biggest economy.
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- This has left the firm neutral on equities and bonds
and generally favouring cash.
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- "2006 should be a year of transition for the United
States, with a pronounced weakening of the economic situation," Hofert
said, projecting U.S. gross domestic product growth to slow to 3 percent
in 2006 and even below that at the start of 2007.
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- "The main reason for this is oil prices which are
now at levels comparable with those of the first oil shock in 1973-1974,
and Hurricane Katrina has not helped, causing a drop in consumer confidence
that is nearly as important as after September 11."
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- Oil prices above $60 a barrel have made core inflation
an issue in the United States, Hofert said, estimating that the Fed would
respond to this situation by raising interest rates by another 75 basis
points between now and January.
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- The situation in Europe is different as economic growth
is expected to pick up modestly in 2006 -- to 2.4 percent in Britain and
1.6 percent in the euro zone -- after this year's slight deceleration.
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- STOCKS AND BONDS
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- Within the euro zone, UBS favours Germany, where it believes
the new coalition government will carry on the economic and labour reforms
initiated by Chancellor Gerhard Schroeder.
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- But this does not make Hofert more bullish on European
equities -- partly because he expects the euro to resume its upward trend
against the dollar, which would hurt euro zone exporters.
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- "We recommend cash, showing that we are not mad
about equities and that we don't like bonds," Hofert said, adding
that bonds remain relatively expensive.
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