Next year will be the year of the economic turnaround. In the course of 2008, we expect to see a positive turning point in the US economic cycle and in the dollar exchange rate. Worldwide, the developed economies are expected to see growth of between one and two percent. Only the emerging economies are expected to continue to grow at a fast pace, as they are now less vulnerable to the effects of slower growth in the rest of the world than they were in the past.
This is what Lex Hoogduin (Chief Economist) says in a Robeco Web TV broadcast in which he gives his views on the economic outlook for 2008, together with Edith Siermann (Chief Investment Officer Fixed Income) and Mark Glazener (fund manager of the Robeco Fund).

Aftermath of the financial unrest of 2007
The financial unrest that broke out in July 2007 has made the outlook for the global economy more uncertain than usual. The US will undoubtedly face a slowdown in growth which will have a knock-on effect throughout the rest of the world and banks will tighten their lending conditions. This will eventually result in lower levels of consumption and capital expenditure which will in turn cause growth and inflation to come under pressure. Such unrest can also undermine confidence in the economic outlook which after some time will also lead to a reduction in growth and inflation. However, Lex Hoogduin predicts that the turning point will come in 2008. "I expect that the measures that the Fed is taking and will continue to take will cause the outlook for the US economy in 2009 and the following years to improve in the course of 2008. This will support the dollar exchange rate and the US stock market".

Fixed income
This last year has been a mixed one for bonds. The credit crisis was the main reason for this. "2008 is expected to be a reasonably good year", according to Edith Siermann. "I assume that interest rates will remain the same or will fall. Returns of 5% may be possible. I am positive on government bonds and for those parts of the market that have been unjustifiably hit by the credit crisis. The outlook for credits is, however, less rosy. As the economy is deteriorating and banks are making it more difficult to borrow money, companies are being squeezed from both sides. It will become more difficult for companies to finance themselves and at the same time their profits will be disappointing".

Equities
Next year will be a difficult year for the stock market. Forecast earnings growth will ultimately determine how stock prices move. In the last few years this earnings growth has been positively affected by numerous factors: increasing economic growth, improved productivity and cost reduction at corporate level and lower financing costs as a result of falling interest rates. This has resulted in record-high profits in a number of countries. The effect of these factors will decrease: economic growth will decrease and interest-rate burdens will increase. The period of easy corporate profit growth (through restructuring and increased operating efficiency) is over. The likely scenario now appears to be one of lower levels of earnings growth. Stock-market returns will be lower than in previous years and more uncertain and volatile. The stock markets in emerging economies are at high levels and, in the last year, have often far outperformed the markets of the developed economies. Investing in emerging economies is still attractive but should be approached with caution. Many of these markets can now no longer be described as cheap.
Mark Glazener: "In 2008 stock selection will be important. A good investment choice should provide a good return. Major sectors that offer relatively safe investment opportunities are: food, information technology and health care. I do not think that the sky is the limit for commodities, I am more positive on energy."

Robeco Web TV
Robeco Web TV has a weekly discussion program which covers current financial-economic topics. You can watch Robeco Web TV on www.robeco.nl and www.robeco.com (under Corporate Information).