The European Commission yesterday warned that the euro zone faces a "deep, prolonged" recession if the financial crises besetting the currency bloc are not solved swiftly.
"Growth has stalled in Europe and there is a risk of a new recession," said Olli Rehn, the commission's vice president for economic and monetary affairs.
The stark warning came as the commission slashed its growth forecast for the euro zone next year by more than a percentage point.
Expected economic growth in the euro zone would drop to 0.5 per cent next year, down from 1.5 per cent this year, it said in its twice-yearly economic forecast. Growth would increase to 1.3 per cent in 2013.
The economy would contract 0.1 per cent in the final three months of the year compared with the previous quarter, with zero growth quarter on quarter in the first three months of next year.
The gloomy warning helped to ensure markets remained rocky, dampening investor hopes of a breakthrough in resolving the debt crisis. The benchmark Stoxx Europe 600 Index added 0.38 per cent to 237.24 during afternoon trading.
Italy's borrowing costs eased slightly as reports suggested the European Central Bank (ECB) bought the country's debt.
Italy sold €5 billion (Dh24.99bn) of one-year bills at an average of 6.087 per cent, the highest in 14 years.
In early trading, the yield on the Italian 10-year note was up 15 basis points to 7.4 per cent, still close to record euro-zone highs.
The ECB bought Italian government bonds, according to three people familiar with the matter, Bloomberg News reported.
Fears are mounting of a possible Italian default on its debt, worsened by uncertainty about the country's political leadership.
Silvio Berlusconi on Tuesday announced he would resign as prime minister once parliament passed urgent reforms, in votes expected this month.
Christine Lagarde, the managing director of the IMF, urged Italy to act quickly to fill the political vacuum.
"No one exactly understands who is going to come out as the leader. That confusion is particularly conducive to volatility," she told a press conference in Beijing yesterday.
Greece, another troubled euro-zone economy, helped remove uncertainty surrounding its own political leadership with the naming yesterday of Lucas Papademos as the country's prime minister.
The former ECB vice president will replace George Papandreou, who said he would step down as prime minister.
Signs that the euro-zone debt crisis may be starting to hurt China, the world's second-biggest economy, also emerged yesterday.
The country's exports rose at the slowest pace in almost two years last month as the euro-zone crisis dented demand. Overseas shipments rose 15.9 per cent from a year earlier, customs bureau data showed.
"The tumultuous events in the euro zone are weighing heavily on China's exports," Alistair Thornton, an analyst at IHS Global Insight, said in a report.
Export weakness may heap pressure on China's government to reverse interest rate increases and other curbs imposed to control its runaway economy.
The export growth slowdown caused Asian markets to slow. Japan's Nikkei 225 index fell 2.4 per cent to 8,549.94, Hong Kong's Hang Seng dropped 4.4 per cent to 19,127.04 and South Korea's Kospi slid 3.4 per cent to 1,842.80.
* with Bloomberg News and Reuters
tarnold@thenational.ae
City's slump
L - Juventus, 2-0
D - C Palace, 2-2
W - N Forest, 3-0
L - Liverpool, 2-0
D - Feyenoord, 3-3
L - Tottenham, 4-0
L - Brighton, 2-1
L - Sporting, 4-1
L - Bournemouth, 2-1
L - Tottenham, 2-1
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
