Global recovery to be stronger than expected: Barclays

Amid investors remaining cautious about improvement in the economic climate, financial services firm Barclays Capital feels global recovery will emerge stronger than expected, mainly in countries lagging recovery such as the US.

According to the global outlook report by Barclays Capital, contrary to expectations of most investors, global recovery is expected to be a lot stronger.

"While most investors accept that the global recession is over, they expect that the recovery will be weak and worry about its sustainability. We believe global recovery is alive and will prove stronger than generally expected, particularly in countries such as the United States that have lagged and where growth expectations remain low," the report stated.

Interestingly, Barclays Capital expects the recovery to be stronger in western countries that suffered the brunt of the slowdown rather than the emerging economies, which are at present leading the recovery.

"We expect a notable shift towards the major developed economies, which have lagged the upturn, balanced by some slowing in those countries, particularly in Asia, that have led the recovery," the report said.

While the US takes on a bigger role in the global recovery, the countries in Asia that led the recovery would be facing inflection points of their own as their expansions transform to more sustainable sources and paces of growth.

The report revealed that China, which led the world out of the recession, appears to be leading this transition and Korea was not far behind.

Moreover, policymakers seem quite cautious about recovery prospects as well, suggesting that they are unlikely to tighten policy quickly as economies improve.

The combination of strong cyclical growth and policy still at "crisis settings" should be favourable for the prices of risky assets even from current levels.

"It is natural to be more cautious after the strong rally of recent months and we are now on alert for signals that it is time to reduce exposure. Although the risk of growth disappointment seems to worry investors most, we are much more concerned about the policy component of the currently supportive combination, particularly in the US," the report said.

Further, Barclays Capital estimates global growth approached four per cent in the third quarter and expect four per cent-plus growth to be sustained in fourth quarter of 2009 and first quarter of 2010.

"This would represent one of the fastest periods of sustained growth in the past two decades. While overall growth is expected to be maintained at a relatively rapid pace, the regional composition is likely to change," the report added.

Moreover, the research report prefers the US, as it expects to see the most pronounced upside growth surprises in that country.