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Global outlook unsettles investors

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August was clouded by concerns over the outlook for the global economy. Although unease over the US’s prospects absorbed a certain amount of the limelight, ongoing uncertainty about Greece’s future within the eurozone continued to destabilise investor sentiment.

Elsewhere, the World Bank reported a 10% surge in global food prices during July, caused by drought in the US and Eastern Europe. The news generated speculation that higher food prices could fuel inflationary pressures – particularly for nations who are net importers of grain.

Share prices rallied at the end of the month following a speech by US Federal Reserve chairman Ben Bernanke that triggered fresh speculation the US central bank might initiate additional quantitative easing measures to kick-start the country’s economy. Bernanke described the country’s economic predicament as “far from satisfactory”, and warned that the labour market remains “a grave concern”. As the US Presidential elections draw closer, unemployment is likely to remain a crucial issue for the country.

US economic growth for the second quarter was revised upward to 1.7% from 1.5%, but remains below the previous quarter’s growth of 2%. The Congressional Budget Office warned that higher taxes and lower levels of government spending could undermine economic expansion in the US next year. As for markets, the Dow Jones Industrial Average rose 0.6% during August.

After stagnating during the first three months of 2012, the eurozone’s economy contracted by 0.2% during the second quarter – although the overall euro region is not technically in recession since its economy has not yet registered two consecutive quarters of negative growth. Germany’s Dax index and the French CAC 40 rose by 2.9% and 3.7% respectively over August.

In comparison, the UK economy – which is already in recession – contracted less severely than initially estimated during the second quarter of 2012, shrinking by 0.5% during the period rather than by the 0.7% that was previously calculated. The boost was provided by stronger-than-expected activity in the construction sector. The FTSE 100 rose 1.4% during the month though trading volumes were relatively muted over the summer holiday period, exacerbated by the London Olympic Games.Various factors continued to place Japan’s economy – and its exporters – under pressure, including the persistent strength of the yen, the eurozone’s sovereign debt crisis and an anaemic economic recovery in the US.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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