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Slow and steady gains the call

Respected BT Funds economist Chris Caton gives his views on what markets will do this year.

Tuesday, February 11th 2003, 3:14AM

by Philip Macalister

Talk of a double-dip recession in the United States will continue for some time, but is unlikely to eventuate, BT Funds Management's Sydney-based economist Chris Caton says.

"I would rate the chance of a return to recession in the US at about one in five," he says.

He believes that the US economy will grow during the year, but that growth will be tepid.

It is very unlikely that the US economy will "suddenly snap back to 5-6% growth that has characterised previous recoveries."

He says talk of a double-dip will continue because the recovery is slow moving.

Caton says it's not uncommon for a market to gain 40% in the first 12 months after the end of a bear market, but that's unlikely to happen this time.

"Nobody should plan on this in 2003," he says. "A forecast gain of 10% appears more reasonable."

Caton says the Asia-Pacific region has been through some tough times like the rest of the world, and Taiwan and Singapore recorded their first ever periods of negative growth in 2001.

His view is that over the long term Asia (ex Japan) will experience better growth than developed countries, therefore investors should be overweight this area.

His note of warning though is that although the region has good growth prospects the markets will "be more volatile than elsewhere."

The outlook for Australia is not so flash in the coming year. Caton says growth across the Tasman has been fuelled by strong housing activity, and that sector is likely to cool down. Also, Australia is likely to be hit hard by the on-going drought.

"The Australian economy has continued to grow relatively well. But it is a lot easier to find negative risks to growth in the next year, than positive (ones)."

He says housing will shift from being a positive factor in the economy to a negative contributor some time during the year.

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