A sluggish recovery of the world economy lead by the US and emerging markets is likely, forecasts Barclays Wealth in its monthly Signpost report.

Looking at the possible future of the economy, the firm anticipates a sluggish recovery with a probability of 60 per cent, but concedes that there could also be a recovery with real momentum (20 per cent probability) or even a prolonged depression (20 per cent probability).

The report predicts that emerging markets, especially in Asia, will be generally better positioned to crawl out of recession than the advanced economies, particularly in countries where policymakers manage to boost demand, such as China.

According to Barclays Wealth, among the developed countries, the US economy is expected to lead the way to recovery as it should get out of recession this summer amid improved business and consumer confidence; the firm continues to expect a modest 1 per cent growth of the US economy next year.

In the euro-area, however, a return to growth is not expected before the fourth quarter of this year. By contrast, improvements in the UK economy in the second quarter have lead Barclays Wealth to confirm their previous prediction of a return to growth of the UK economy by the end of 2009.

In the US, further falls in the consumer price index is expected, with inflation possibly dropping below 1 per cent in 2010. In the euro-area, inflation is also predicted to remain negative for the next few months, and should stay below the European Central Bank’s target level.

By contrast, in the UK inflation is expected to remain positive and increase slightly before the end of the year.

“All in all, the summer looks to be a period of 'steady as she goes'. Only in the autumn do we expect confidence in the recovery’s persistence to grow, and riskier asset classes to really outperform again,” said Michael Dicks, head of research at Barclays Wealth.

The firm expects that short-term interest rates will stay low for now, while bond yields will trend higher. However, the latter will be limited by quantitative easing, which will prevent the development from being very abrupt.

Barclays Wealth is of the view that equity markets will rise after a pause, while commodity prices are also expected to rise slightly. The economic revival of several emerging markets might even push some commodity prices higher than warranted, the firm said.

Looking at the rally on the property markets during the second quarter of this year, the firm sees potential for further headway, but also warns that in some markets, such as the US real estate market, some indigestion should be expected.

Analysing the foreign exchange market, Barclays Wealth expects the still expensive euro to decrease in value, while sterling and Asian currencies should appreciate a little.