Global economic outlook improves

One year after global equity markets plumbed their depths, most major indices ended the month – and the first quarter of 2010 – in positive territory.

In the UK, the FTSE 100 index rose by more than 60% from its lows of March 2009, fuelling speculation during the month the benchmark index might move closer to the 6,000-point level. News during March was dominated by the announcement of the last Budget before the General Election. The Chancellor expects the UK’s massive budget deficit to fall from 11.8% of GDP to 4% by 2015, although some commentators criticised his Budget for a lack of detail as to how this could actually be achieved.

According to the Investment Management Association, UK retail investors’ appetite for mutual funds recovered during the first quarter of 2010, and net retail sales experienced their best-ever January in 2010, notching up sales that were 55% higher than in January 2009. In contrast to that period, equities proved more attractive to retail investors than bonds as the idea of risk regained its appeal.

In the US, share prices continued to make upward progress as investors became more confident in the sustainability of the economic recovery. In particular, US stocks received a boost during the month after the Federal Reserve confirmed that it intends to maintain interest rates at their current near-zero level in order to support the economic recovery. Meanwhile, US retail sales posted an unexpected rise during February, increasing by 0.3%, month on month, despite February’s unusually snowy weather.

In Europe, the euro continued to wobble against other key currencies amid worries that Greece might not be able to obtain financial support from the European Union – a possibility that might force Greek leaders to approach the International Monetary Fund for aid.

Elsewhere, Asian stocks experienced some volatility during the month amid fears that central banks within the region might decide to increase measures to cool inflationary pressures. In China, surging export activity led to renewed calls for the government to increase the value of the yuan.

According to a recent survey conducted by the Japanese government, optimism among large manufacturers in the country increased for a third consecutive quarter, suggesting that its economy has been helped out of recession by growing export activity. However, falling prices have meant that service companies have not benefited from the export-led recovery and deflationary pressures remain a concern.

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