We are living in uncertain economic times

THE global economy is emerging from three years of solid economic growth. This benign economic background proved supportive of global equity markets and investors have enjoyed good returns.

Despite the volatility induced by the implosion of the subprime mortgage market since the middle of the summer, most international markets are still showing positive returns, with the German market leading the way. Given the current background, such market behaviour may point towards naïve complacency.

The reality is that all US housing statistics are still suggesting an ongoing sharp fall in that market, posing a considerable risk to the US economy in general. Furthermore, it is clear we have not reached the end of the subprime mortgage crisis. On Wednesday, Merrill Lynch announced that it would take write-downs of $7.9 billion (€5.5bn) for collateralised debt obligations and US subprime mortgages. This was significantly larger than previously forecast. This news followed on from a Bank of America announcement last week, and indeed from a raft of major global financial institutions in recent weeks. The bad news is that further similar announcements are likely over the coming months.