2013 Economic Outlook - Signs of Optimism

So will the optimism that's been building up towards the end of 2012 be quashed in 2013 just as in previous years? We'll have to wait and see but since growth forecasts for 2013 have been slashed left, right and centre recovery looks like it'll be feeble at best.
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Déjà vu springs to mind as we commence the year where we see a degree of optimism in respect of 2013 - albeit very tentative optimism. In the past few years the last couple of months of the calendar year have seen a similar bout of hopefulness whereby investors have looked ahead with high expectations of a sustained economic recovery only to have their hopes dashed quite spectacularly. So will the optimism that's been building up towards the end of 2012 be quashed in 2013 just as in previous years? We'll have to wait and see but since growth forecasts for 2013 have been slashed left, right and centre recovery looks like it'll be feeble at best.

However, recent surveys suggest that both investors and business leaders are confident about 2013. Maybe it is just because they feel that things can't get much worse. Our own research conducted in Q4 of 2012 showed that UK fund managers were more optimistic about the UK economy than they have ever been since we started conducting the survey back at the beginning of 2011. This mirrors a survey of small UK firms' CEOs and FDs by Numis which found that only 13% would cut investment next year with almost half saying they plan to increase investment.

So, whilst the future may not look particularly bright, you can't fault the stoicism of investors and business leaders. This is precisely what the markets and the economy needs - more confidence which should translate into more investment, more new jobs and an uptick in growth. The biggest question on investors' minds is where is the best place to put their money?

Those investors who believe that the global economy will improve next year have been recommending that equities remain a good place to put your money relative to other asset classes with those globally exposed companies probably being a better bet than more domestically focused. After a few years of deleveraging now we could see a further improvement of risk appetite and as long as central banks keep doing their bit to help the view that equities should continue in their upward trend seems a sound one. In the UK the consumer has shown indications of a revival with the stellar rebound in Q3 GDP and the government's Funding for Lending Scheme is showing signs of gaining traction.

There are still major risks that could completely derail any economic recovery such as the European sovereign debt crisis and political risk from Italian and German elections, but maybe, just maybe 2013 might finally provide something to smile about.

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