Investment and exports are 'magic solutions' for indebted countries

ASSET ALLOCATION

The line of least resistance for equities has been upward since June, despite evidence coming through the slowdown in growth is occurring.

The reason is partly there has been a substantial shift in the relative valuation between equities and bonds and the shrinkage in growth forecasts looks modest. All is far from rosy economically, however. The likely course for developed economies in the coming years is for growth to fluctuate around a level of economic growth that is sedated by the need to reduce debt levels. Fluctuations around an average growth rate of 1.5% are likely to produce periods of near stagnation, producing regular scares that recession is returning. In contrast, when recoveries in the past 50 years have be...