Fifth of managers expect recession

Almost a fifth of managers say that a global recession is either “likely” or “very likely”, Merrill Lynch’s Global Survey of Fund Managers for January reveals.

About 19% of respondents said they thought recession was possible in the next 12 months. Those thinking there was already a global recession doubled from December to 8%.

David Bowers (pictured), an independent consultant to Merrill Lynch, says the survey shows “an evolution of expectations, from fears of a slowdown to fears of a major recession”.

Merrill Lynch defines recession as two consecutive quarters of economic contraction, but this view has been challenged.

America’s National Bureau of Economic Research (NBER), the organisation that declares whether America is officially in recession, has a broader definition: a significant decline in economic activity across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales.

The joint-highest risks to financial market stability are perceived to be business cycle risk, which has risen in significance over the past four months, and Credit (Default) Risk.

The results follow Moody’s Investors Service December prediction for North America that corporate bond defaults will rise from 0.9% in 2007 to 4.8% in 2008. Moody’s expects this figure to climb further to 5% in 2009.

Despite these fears, 15% of respondents viewed equities as an undervalued asset class.